**High-Low Method for a Service Company**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.| Month | Transportation Costs | Gross-Ton Miles ||------------|----------------------|-----------------|| January | $690,500 | 230,000 || February | $769,900 | 257,000 || March | $544,100 | 166,000 || April | $738,100 | 248,000 || May | $619,100 | 200,000 || June | $793,700 | 270,000 |Determine the variable cost per gross-ton mile and the total fixed cost.- Variable cost (If required, round to two decimal places): $_____ per gross-ton mile- Total fixed cost: $_____**Instructions:**Use the "Check My Work" feature to verify your calculations as needed.

Answered: High-Low Method for a Service Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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**High-Low Method for a Service Company**

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.

| Month | Transportation Costs | Gross-Ton Miles |
|------------|----------------------|-----------------|
| January | $690,500 | 230,000 |
| February | $769,900 | 257,000 |
| March | $544,100 | 166,000 |
| April | $738,100 | 248,000 |
| May | $619,100 | 200,000 |
| June | $793,700 | 270,000 |

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

- Variable cost (If required, round to two decimal places): $_____ per gross-ton mile
- Total fixed cost: $_____

**Instructions:**

Use the "Check My Work" feature to verify your calculations as needed.

Expert Solution

Step 1: Defining high low method.

The high-low method is used to differentiate the mixed cost. Mixed cost is the combination of fixed cost and variable cost. The variable cost per unit can be calculated by dividing the change in cost by the change in units and the fixed cost can be calculated by deducting the variable cost from the total cost.

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