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E21-30 Determing Mixed Costs�The High-Low Method

Assignment solution on cost estimation using the high-low method.

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E21-30 Determing Mixed Costs—The High-Low MethodThe manager of Able Car Inspection reviewed the monthly operating costsfor the pastyear. The costs ranged from $4,000 for 1,000 inspections to$3,600 for 600 inspections.Requirements1. Calculate the variable cost per inspection.High1,000 inspections$4,000Low600inspections$3,600Difference400 inspections$400Variable cost$1 per inspection($400 / 400)2. Calculate the total fixed costs.Fixed cost= Total cost–Variable costTake high level= $4,000–(1,000 x $1)= $4,000-$1,000= $3,000Fixed cost= $3,0003. Write the equation and calculate the operating costs for 800 inspections.Equation of Total cost= Fixed cost + Variable cost= $3,000 + $nCost of 800 inspections= $3,000 + ($1 x 800)= $3,800

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4. Draw a graph illustrating the total cost under this plan. Label the axes,andshow the costs at 600, 800, and 1,000 inspections.

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