Blowing Rock Railroad decided to use the high-low method and operating data from

Question

Blowing Rock 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 Blowing Rock Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.

Determine the variable cost per gross-ton mile and the fixed cost.

Transportation Costs Gross-Ton Miles January $1,384,400 307,000 February 1,543,600 343,000 March 1,090,900 222,000 April 1,479,900 332,000 May 1,241,200 267,000 June 1,591,300 361,000

Explanation / Answer

variable cost per green-ton mile = 1591300 - 1090900 / 361000 -222000

= 3.6

total cost = variable cost per green ton mle * green ton miles + fixed cost

for highest level

1591300 = 3.6 * 361000 + fixed cost

total fixed cost = 291700

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