High-Low Method Luisa Crimini has been operating a beauty shop in cullege tuwn for the past 10 years. Recently, Luise rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed, but found that tenning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows: ITT Tanning Appointments Total Cost Month January 1,600 si,754 February 2,000 2,140 March 3,500 2,790 April 2,500 2,40D May 1,500 1,79D June 2,300 2,275 July 2,150 2,20D August 3,000 2,640 Required: 1. Which month represents the high point? The low point? March High point May Law paint 2. Using the high-low method, compute the variable rate for tanning. Compute the fixed cost per month. Round the variable rate per tanning appointment to the nearest cent per tanning Vanable rate for tanning appointmant Fxed cost per month 3. Using the variable rate and fixed cost, what is the cost formula for tanning services? Total tanning service cost $1,040 ($0.50 x Number of appointments) 4. Calculate the total predidted cost of tanning services for September for 2,50D appaintments using the formula found in Requirement 3. Df that total cost, haw much is the tatal fixed cost for September? How much is the total predicted variable cost for September? In your calculations, round varieble cost per unit to the nearest cent. If required, round the final answers to the nearest dollar Total predicted cost far September Total fixed cost for September Total predicted variable cost for September 5. Which of the fallowing statements is corect when luisa uses the high-low method to estimate the casts? All of the above. Feadback Check My Work 1. Review high-low method. This methad separates mixed costs. High and law points are determined by activity. 2. Detemine the highest and lowest levels, based on activity. Take the difference between the correspanding costs with the selected levels, and then divide this by the difference between the highest and lowest activity levels (units). This results in the variable rate. Multiply the varlable rate by cithor the high ar law activity lavel of units. This is the varlable cost. Subtract the varsble cost from the tatal cost to determine the fixad cost. Construct a cast farmula using the fxed cost and variable rate multiplied by the number of appointments (x) 3. Review cost equation. The total cost fomula consists of fixed costs (constant) and varlable costs (varlable rate x number of appointnents). Fixed costs comespond with the y-intercept. Variable costs reflect the slope. Dependent variable is the cost being predicted. Independent variable is the cest driver 4, Use the cost formula in #3 and the 2,500 appointments