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22 December, 13:44

hornton Computer Services, Inc. has been in business for six months. The following are basic operating data for that period: Month July Aug. Sept. Oct. Nov. Dec. Service hours 120 136 260 420 320 330 Revenue $ 6,000 $ 6,800 $ 13,000 $ 21,000 $ 16,000 $ 16,500 Operating costs $ 4,300 $ 5,300 $ 7,100 $ 11,200 $ 9,100 $ 10,600 Required What is the average service revenue per hour in each month and the overall average for the six-month period? Use the high-low method to estimate the total monthly fixed cost and the variable cost per hour. Determine the average contribution margin per hour.

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  1. 22 December, 13:53
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    The total monthly fixed cost and the variable cost per hour is $1,540 and $23

    The average contribution margin per hour is $27

    Explanation:

    The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

    Variable cost per hour = (High Operating cost - low operating cost) : (High service hours - low service hours)

    = ($11,200 - $4,300) : (420 hours - 120 hours)

    = $6,900 : 300 hours

    = $23

    Now the fixed cost equal to

    = High operating cost - (High service hours * Variable cost per hour)

    = $11,200 - (420 hours * $23)

    = $11,200 - $9,660

    = $1,540

    For computing the contribution margin per hour, first we have to compute the revenue per hour which is shown below:

    = Revenue : service hours

    = $6,000 : 120 hours

    = $50

    We know that,

    The contribution per hour = Revenue per hour - variable cost per hour

    = $50 - $23

    = $27
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