officials of the hidden hills golf and tennis club are in the process of preparing a 544676

Mixed Costs

Officials of the Hidden Hills Golf and Tennis Club are in the process of preparing a budget for the year ending December 31. Because Ramon Saud, the club treasurer, has had difficulty with two expense items, the process has been delayed by more than four weeks. The two items are mixed costs—expenses for electricity and for repairs and maintenance—and Saud has been having trouble breaking them down into their variable and fixed components. An accountant friend has suggested that he use the high-low method to divide the costs into their variable and fixed parts. The spending patterns and activity measures related to each cost during the past year are as follows:

Required

1. Using the high-low method, compute the variable cost rates used last year for each expense. What was the monthly fixed cost for electricity and for repairs and maintenance?

2. Compute the total variable cost and total fixed cost for each expense category for last year.

3. Saud believes that in the coming year, the electricity rate will increase by $0.005 and the repairs rate, by $1.20. Usage of all items and their fixed cost amounts will remain constant. Compute the projected total cost for each category. How will the cost increases affect the club’s profits and cash flow?