High-Low Method Sophia operates a full service day spa in a small college town. Recently, Sophia...

Transcribed Image Text:

High-Low Method Sophia operates a full service day spa in a small college town. Recently, Sophia rented space next to her spa and opened a spray tanning salon. She anticipated that the costs for the spray tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows: Month Tanning Appointments Total Cost January 1,500 $36,900 February 1,600 38,250 March 1,700 39,000 April 1,400 33,750 May 1,300 36,000 June 1,625 40,000 July 1,350 35,100 August Required: 1,200 33,000 1. Which month represents the high point? The low point? High point! Low point 2. Using the high-low method, compute the variable rate for tanning. Next, compute the fixed cost per month. Round the variable rate per tanning appointment to the nearest cent. Variable rate for tanning $ per tanning appointment Fixed cost per month: 3. Using the variable rate and fixed cost, what is the cost formula for tanning services? 4. Calculate the total predicted cost of tanning services for September for 1,650 appointments using the formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? In your calculations, round variable cost per unit to the nearest cent. If required, round the final answers to the nearest dollar. Total predicted cost for September Total fixed cost for September $ Total predicted variable cost for September 5. Calculate the total predicted cost of tanning services for September for 2,100 appointments. While the total cost prediction is greater than the prediction from Requirement 4, Sophia should be concerned that the number of tanning appointments of 2,100 in this calculation is tanning appointments (1,700) contained in the 8 months of data upon which the high-low method constructed the cost function. than the highest number of 6. Which of the following statements is correct when Sophia uses the high-low method to estimate the costs? High-Low Method Sophia operates a full service day spa in a small college town. Recently, Sophia rented space next to her spa and opened a spray tanning salon. She anticipated that the costs for the spray tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows: Month Tanning Appointments Total Cost January 1,500 $36,900 February 1,600 38,250 March 1,700 39,000 April 1,400 33,750 May 1,300 36,000 June 1,625 40,000 July 1,350 35,100 August Required: 1,200 33,000 1. Which month represents the high point? The low point? High point! Low point 2. Using the high-low method, compute the variable rate for tanning. Next, compute the fixed cost per month. Round the variable rate per tanning appointment to the nearest cent. Variable rate for tanning $ per tanning appointment Fixed cost per month: 3. Using the variable rate and fixed cost, what is the cost formula for tanning services? 4. Calculate the total predicted cost of tanning services for September for 1,650 appointments using the formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? In your calculations, round variable cost per unit to the nearest cent. If required, round the final answers to the nearest dollar. Total predicted cost for September Total fixed cost for September $ Total predicted variable cost for September 5. Calculate the total predicted cost of tanning services for September for 2,100 appointments. While the total cost prediction is greater than the prediction from Requirement 4, Sophia should be concerned that the number of tanning appointments of 2,100 in this calculation is tanning appointments (1,700) contained in the 8 months of data upon which the high-low method constructed the cost function. than the highest number of 6. Which of the following statements is correct when Sophia uses the high-low method to estimate the costs?