Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Gargymal company would like to estimate the variable and fixed components of its

ID: 2385960 • Letter: G

Question

Gargymal company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past 5 months of options

Machine hours Electrical cost
August 1000 $1,620
September 900 $1,510
October 1,500 $1,870
November 2,000 $1,950
December 1,300 $1,730

Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to which of the following?
A.$1,306.50
B.$870.00
C.$1,150.00
D.$1,290.00

***PLEASE SHOW ME HOW to get the answer***

Explanation / Answer

According to the method if analysis..

The high and the low are November 2,000 and September 900 at $1,950 and $1,510

The Slope is(1950 – 1510)/(2000 – 900) = 440/1100 = 0.40.

Total cost = (Variable cost*machine hours + fixed cost)

Using the high, it would be:

1950 = 0.40*2000 + fixed cost
1950 = 800 + fixed cost
Fixed cost = 1150.

SO the answer is C..