Use the following to answer questions
The TLC Motel, which uses the high/low method to estimate its total cost formula, gathered the following data for the first six months of its current fiscal year:

-The fixed housekeeping cost per month is:
A)$7,750
B)$7,830
C)$7,882
D)$8,813

Question

Use the following to answer questions 
The TLC Motel, which uses the high/low method to estimate its total cost formula, gathered the following data for the first six months of its current fiscal year:
 
-The fixed housekeeping cost per month is:
A)$7,750 
B)$7,830 
C)$7,882 
D)$8,813

Quizplus · Accepted Answer

The fixed housekeeping cost is equal to the total cost at the lowest level of activity minus the variable cost per unit multiplied by the lowest level of activity. Using the data given, the lowest level of activity is 11,000 rooms rented in January. The total cost in January was $19,500, and the variable cost per unit is $1.50 per rented room. Therefore:

Fixed housekeeping cost = $19,500 - ($1.50 x 11,000) = $7,750

Therefore, the best choice is A.

Use the Following to Answer Questions