High-Low Method

Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa 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 tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows:

		Tanning
Month		Appointments			Total Cost
January		800			$1,748
February		2,100			$2,110
March		3,600			$2,840
April		2,600			$2,400
May		1,400			$1,800
June		2,400			$2,255
July		2,110			$2,100
August		2,900			$2,650

Required:

1. Which month represents the high point? The low point?

High point	March
Low point	January

In your calculations, round per unit costs to the nearest cent.

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 and use it in your further calculations. Round the fixed cost per month to the nearest dollar and use it in your further calculations.

Variable rate for tanning	$ per tanning appointment
Fixed cost per month	$

3. Using the variable rate and fixed cost, what is the cost formula for tanning services?

4. Calculate the total predicted cost of tanning services for September for 2,600 appointments using the formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? If required, round the final answers to the nearest dollar.

Total predicted cost for September	$
Total fixed cost for September	$
Total predicted variable cost for September	$

5. Which of the following statements is correct when luisa uses the high-low method to estimate the costs?

Cost Behavior

Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,675,000 + $375X, where X = Number of Heart Stents. Last year, Alisha produced 58,000 stents. Actual maintenance costs for the year were as expected.

Required:

If required, round your answers to the nearest cent.

1. What is the total maintenance cost incurred by Alisha last year? $

2. What is the total fixed maintenance cost incurred by Alisha last year? $

3. What is the total variable maintenance cost incurred by Alisha last year? $

4. What is the maintenance cost per unit produced? $per unit

5. What is the fixed maintenance cost per unit? $per unit

6. What is the variable maintenance cost per unit? $per unit

7. Alisha management could improve its cost function to better understand past maintenance costs and predict future maintenance costs by.

1. Income Statements under Absorption and Variable Costing

   In the coming year, Kalling Company expects to sell 28,700 units at $32 each. Kallings controller provided the following information for the coming year:

   Units production	30,000
   Unit direct materials	$ 9.95
   Unit direct labor	$ 2.75
   Unit variable overhead	$ 1.65
   Unit fixed overhead*	$ 2.50
   Unit selling expense (variable)	$ 2.00
   Total fixed selling expense	$ 65,500
   Total fixed administrative expense	$231,000

   * The unit fixed overhead is based on 30,000 units produced.

   Required:

   1. Calculate the cost of one unit of product under absorption costing.

   $

   2. Calculate the cost of one unit of product under variable costing.

   $

   3. Calculate operating income under absorption costing for next year.

   $

   4. Calculate operating income under variable costing for next year.

   $