High-Low Method for a Service Company Continental 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 Continental Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved. Transportation Costs Gross-Ton Miles January $1,132,100 292,000 February 1,262,300 326,000 March 892,100 211,000 April 1,210,200 316,000 May 1,015,000 254,000 June 1,301,300 343,000 Determine the variable cost per gross-ton mile and the total fixed cost. Variable cost (Round to two decimal places.) $ per gross-ton mile Total fixed cost $
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
High-Low Method for a Service Company
Continental 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 Continental Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.
| Transportation Costs | Gross-Ton Miles | |||
| January | $1,132,100 | 292,000 | ||
| February | 1,262,300 | 326,000 | ||
| March | 892,100 | 211,000 | ||
| April | 1,210,200 | 316,000 | ||
| May | 1,015,000 | 254,000 | ||
| June | 1,301,300 | 343,000 |
Determine the variable cost per gross-ton mile and the total fixed cost.
| Variable cost (Round to two decimal places.) | $ per gross-ton mile |
| Total fixed cost | $ |
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