I have found the variable portion (51.9%) but don't understand how to get the fixed portion in dollars. Davis Stores sells clothing in 15 stores located around the southwestern United States. The managers at Davis are considering expanding by opening new stores and are interested in estimating costs in potential new locations. They believe that costs are driven in large part by store volume measured by revenue. The following data were collected from last year’s operations (revenues and costs in thousands of dollars). Store Revenues Costs 101 $4,100 $4,214 102 2,227 2,894 103 5,738 5,181 104 3,982 3,998 105 2,914 3,676 106 4,023 3,319 107 6,894 5,029 108 1,779 2,374 109 5,416 4,688 110 3,228 2,959 111 3,886 4,179 112 4,690 3,200 113 3,552 2,556 114 4,817 4,655 115 2,124 2,986
I have found the variable portion (51.9%) but don't understand how to get the fixed portion in dollars.
Davis Stores sells clothing in 15 stores located around the southwestern United States. The managers at Davis are considering expanding by opening new stores and are interested in estimating costs in potential new locations. They believe that costs are driven in large part by store volume measured by revenue. The following data were collected from last year’s operations (revenues and costs in thousands of dollars).
| Store | Revenues | Costs |
| 101 | $4,100 | $4,214 |
| 102 | 2,227 | 2,894 |
| 103 | 5,738 | 5,181 |
| 104 | 3,982 | 3,998 |
| 105 | 2,914 | 3,676 |
| 106 | 4,023 | 3,319 |
| 107 | 6,894 | 5,029 |
| 108 | 1,779 | 2,374 |
| 109 | 5,416 | 4,688 |
| 110 | 3,228 | 2,959 |
| 111 | 3,886 | 4,179 |
| 112 | 4,690 | 3,200 |
| 113 | 3,552 | 2,556 |
| 114 | 4,817 | 4,655 |
| 115 | 2,124 | 2,986 |
Required:
a. Use the high-low method to estimate the fixed and variable portions of store costs based on revenues. (Round variable cost percentage answer to 1 decimal place. Enter Fixed cost answer in thousands of dollars.)
One of the costing strategies used in accounting to distinguish between fixed and variable costs is the high-low method. The high-low formula is used to calculate the variable cost component of historical costs, which is a mix of fixed and variable costs. The cost of the lowest activity is subtracted from the cost of the highest activity, and the resulting amount is calculated by dividing the difference between the units of the highest activity and the lowest activity.
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