Exercise 19-8

Cost Behavior and Cost-Volume-Profit Analysis Warren / Reeve / Duchac Exercise 19-8 solution

High-low method for service company

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.

Variable cost: $2.2 per gross-ton mile
Total fixed cost: $160,000