Hornton computer services, inc. has been in business for six months. the following are basic ­operating data for that period: month july aug. sept. oct. nov. dec. service hours 120 136 260 420 320 330 revenue $ 6,000 $ 6,800 $ 13,000 $ 21,000 $ 16,000 $ 16,500 operating costs $ 4,300 $ 5,300 $ 7,100 $ 11,200 $ 9,100 $ 10,600 required what is the average service revenue per hour in each month and the overall average for the six-month period? use the high-low method to estimate the total monthly fixed cost and the variable cost per hour. determine the average contribution margin per hour.

The total monthly fixed cost and the variable cost per hour is $1,540 and $23

The average contribution margin per hour is $27

Explanation:

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per hour = (High Operating cost - low operating cost) ÷ (High service hours - low service hours)

= ($11,200 - $4,300) ÷ (420 hours - 120 hours)

= $6,900 ÷ 300 hours

= $23

Now the fixed cost equal to

= High operating cost - (High service hours × Variable cost per hour)

= $11,200 - (420 hours × $23)

= $11,200 - $9,660

= $1,540

For computing the contribution margin per hour, first we have to compute the revenue per hour which is shown below:

= Revenue ÷ service hours

= $6,000 ÷ 120 hours

= $50

We know that,

The contribution per hour = Revenue per hour - variable cost per hour

                                           = $50 - $23

                                           = $27

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