Louis Petit, a manager of Doggone Gorgeous, Inc., was reviewing the water bills of a dog daycare and spa. He determined that its highest and lowest bills of $ 3 comma 800 and $ 2 comma 400 were incurred in the months of May and November, respectively. If 600 dogs were washed in May and 100 dogs were washed in November, what was the fixed cost associated with the company's water bill

Question

Guadalupe Lamb

Business

9 August, 04:19

Louis Petit, a manager of Doggone Gorgeous, Inc., was reviewing the water bills of a dog daycare and spa. He determined that its highest and lowest bills of $ 3 comma 800 and $ 2 comma 400 were incurred in the months of May and November, respectively. If 600 dogs were washed in May and 100 dogs were washed in November, what was the fixed cost associated with the company's water bill

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Answers (1)

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Jovanni Camacho · Answer 1

Fixed costs = $2,120

Explanation:

Giving the following information:

The highest and lowest bills of $3,800 (May) and $2,400 (November)

600 dogs were washed in May and 100 dogs were washed in November.

To calculate the unitary variable cost and fixed cost, we need to use the high/low method:

Variable cost per unit = (Highest activity cost - Lowest activity cost) / (Highest activity units - Lowest activity units)

Variable cost per unit = (3,800 - 2,400) / (600 - 100) = $2.8 per dog

Fixed costs = Highest activity cost - (Variable cost per unit * HAU)

Fixed costs = 3,800 - (2.8*600) = $2,120

Fixed costs = LAC - (Variable cost per unit * LAU)

Fixed costs = 2,400 - (2.8*100) = $2,120