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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

High-low method for a service company

Boston Railroad derided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed “gross-ton miles,” which is the total number of tons multiplied by the miles moved.

  Transportation Costs Gross-Ton Miles
January $1,776,000 560,000
February 2,700,000 1,000,000
March 1,650,000 500,000
April 1,860,000 600,000
May 1.440,000 400,000
June 1,566,000 460,000

Determine the variable cost per gross-ton mile and the total fixed cost.

To determine

High-low method: It is the method of estimating the variable cost per unit and the fixed costs by using the highest and the lowest level of activities and their associated costs.

To determine: the variable cost per gross-ton mile.

Explanation

Determine the variable cost per gross-ton mile.

Difference in total transportation cost =$1,260,000 (refer Table 1)

Difference in gross-ton miles produced =600,000 gross-ton miles (refer Table 1)

Variablecostpergross-tonmile] =DifferenceintotaltransportationcostDifferenceingross-tonmilesproduced=

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