A company incurred the following monthly utility costs last year : In January ,

Question

A company incurred the following monthly utility costs last year : In January , 11,000 pounds of the product produced, at a cost of $5,500 In February, 9,000 pouds of the product produced, at a cost of 4,500 In March, 8,000 pound of the product produced, at a cost of 4,300 In April, 10,000 pounds of the product produced, at a cost of 5,000 In May, 13,000 pounds of the product produced, at a cost of 6,500 In June, 14,000 pounds of the product produced, at a cost of 7,200 In July, 7,000 pounds of the product produced, at a cost of 3,500 In August, 6,000 pounds of the product produced, at a cost of 3,200 In September, 5,000 pounds of the product produced, at a cost of 3,400 In October, 4,000 pound of the product produced, at a cost of 2,400 In November, 8,000 pounds of the product produced, at a cost of 4,200 In December, 10,000 Pouds of the prduct produced, at a cost of 4,900 a- Use the hig-low method to estimate the company's utilities cost behavior and state the cost formula. b- Predict the utilities cost for a month in which 12,000 pounds of the product were produced.

Explanation / Answer

variable cost = (y2-y1)/(x2-x1) y2 = highest price, y1 = lowest price x2 = highest quantity, x1 = lowest quantity (7200-2400)/(14000-4000) = 0.48/unit so fixed cost = 7200 - 0.48*14000 = 480. b) 12000 units cost = 480 + 0.48*12000 = 6240

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