Using the high/low estimation method: a) Determine the cost estimation equation.

Question

          Using the high/low estimation method:

          a) Determine the cost estimation equation.

          b) Estimate the total department costs during a month where 18,500

                customers are serviced.

            c) Estimate the total department cost during a month where 35,000 customers are    

                serviced.

July August September October November Decem ber Department Costs $350,500 276,360 281,930 337,865 312,120 358,775 umber of Customers 28,450 14,240 15,970 26,580 23,230 29,790

Explanation / Answer

Department costs Number of customers High level 358775 29790 Low level 276360 14240 Difference 82415 15550 a Unit variable cost = 82415/15550= $5.30 Monthly fixed cost = 358775-(29790*5.3)= $200888 Cost estimation equation = $200888+$5.3X, where X is the number of customers b Total department costs = 200888+(18500*5.3)= $298938 c Total department costs = 200888+(35000*5.3)= $386388

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