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Assigment 3
Assigment 3
The number of blood tests performed and the related costs over the last nine
months in Brentline Hospital are given below:
Required:
1. Using the high–low method, estimate the cost formula for blood tests.
The high-low method is a way to estimate the variable and fixed components of a cost.
It uses the highest and lowest activity levels (in this case, the number of blood tests
performed) and their corresponding costs to calculate the variable cost per unit and the
total fixed cost. Here's how it works:
1. Identify the highest and lowest activity levels and their corresponding costs.
2. Calculate the variable cost per unit using the formula:
Variable Cost per Unit=Cost at Highest Activity Level−Cost at Lowest A
ctivity LevelHighest Activity Level−Lowest Activity LevelVariable Cost
per Unit=Highest Activity Level−Lowest Activity LevelCost at Highest A
ctivity Level−Cost at Lowest Activity Level
3. Calculate the total fixed cost by subtracting the total variable cost at either the
high or low activity level from the total cost at that level.
4. Formulate the cost formula as:
Total Cost=(Variable Cost per Unit×Number of Units)+Fixed CostTotal
Cost=(Variable Cost per Unit×Number of Units)+Fixed Cost
This formula estimates the total cost of blood tests based on the number of tests
performed, where $3 is the variable cost per test, and $4,000 is the total fixed cost.
2. Using the cost formula you derived above, what blood test costs would you
expect to be incurred during a month in which 2,300 blood tests are
performed?
Using the correct formula derived from the high-low method, we can calculate the
expected costs for a month in which 2,300 blood tests are performed at Brentline
Hospital.
Given Formula:
�=4,000+3�y=4,000+3x
Where:
Thus, for a month in which 2,300 blood tests are performed, the expected total cost
incurred would be $10,900, comprising $6,900 in variable costs and $4,000 in fixed costs.
2.
Amount
Total sales revenue $1,600,000
Selling price per snowboard $ 800
Variable selling expense per snowboard $ 100
Variable administrative expense per snowboard$ 40
Total fixed selling expense $ 300,000
Total fixed administrative expense $ 240,000
Merchandise inventory, beginning balance $ 60,000
Merchandise inventory, ending balance $ 90,000
Merchandise purchases $ 640,000
Required:
1. Prepare a traditional income statement for the quarter ended December 31.
3. What was the contribution toward fixed expenses and profits for each
snowboard sold during the quarter?
4.What would operating income be if only 1,500 snowboards were sold in a
quarter? You can assume no change to fixed expenses will occur if sales
decline to 1,500 snowboards.