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31 December, 18:56

Boston Railroad decided 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 MilesJanuary $1,776,000 560,000February 2,700,000 1,000,000March 1,650,000 500,000April 1,860,000 600,000May 1,440,000 400,000June 1,566,000 460,000Determine the variable cost per gross-ton mile and the total fixed cost. Variable cost (If required, round to two decimal places.) $ per gross-ton mileTotal fixed cost $

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  1. 31 December, 19:11
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    (i) 2.1

    (ii) $600,000

    Explanation:

    Transportation costs:

    Highest activity = $2,700,000

    Lowest activity = $1,440,000

    Change = $1,260,000

    Gross tons miles:

    Highest activity = $1,000,000

    Lowest activity = $400,000

    Change = $600,000

    Variable cost per gross ton mile:

    = Change in transportation costs : Change in gross ton miles

    = $1,260,000 : $600,000

    = 2.1

    Total cost = Fixed cost + (variable cost * gross ton miles)

    $1,440,000 = Fixed cost + (2.1 * $400,000)

    Fixed cost = $1,440,000 - $840,000

    = $600,000
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