Problem: The ABC University has hired you, a managerial accounting student enrolled this semester, to analyze the cost of their IT services they provide to their students. ABC has given you the following data which shows the monthly total costs of providing IT services, as well as the number of students who are using the IT services each month.
Month Number of Students Using IT Services Total Cost of IT Services
January 1,700 $225,500
February 2,000 $241,700
March 2,150 $249,800
April 2,200 $252,500
May 2,500 $268,400
June 650 $168,100
July 500 $159,500
August 1,000 $187,500
September 1,450 $211,900
October 1,800 $231,500
November 2,100 $247,200
December 2,350 $259,900
Answer the following questions in good form. Be sure to provide the detail (formulas) as to how you arrived at each answer. In other words, be sure to show your work! Do not round. Take number out to 2 decimal places.
Use the High-Low method of accounting to answer the following questions:
What is the variable cost per unit?
What is the fixed cost?
ABC plans to see an increase in student enrollment over the next two years, so they have asked you to calculate the total cost of providing services to 3,100 students for projected year 2024 and 3,500 students for projected year 2025.
Discuss the limitations of using the High-Low method.