Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed
ID: 2505341 • Letter: J
Question
Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the company's energy cost behavior. The following costs were incurred during the past 12 months:
Month Pints of Applesauce Produced Energy Cost
Required:
1.
Use the high-low method to estimate the company's energy cost behavior and express it in equation form. Use the formula Y = a + bX, where Y denotes energy cost for a month and X denotes pints of applesauce produced.
Total energy cost = $_____ + $______ X
2.
Predict the energy cost for a month in which 78,000 pints of applesauce are produced
Energy cost $
January 109,000 $ 70,600 February 67,000 66,100 March 70,000 66,800 April 76,000 67,950 May 94,000 69,100 June 100,000 70,250 July 124,000 70,300 August 94,000 68,800 September 94,000 69,400 October 88,000 68,500 November 127,000 72,700 December 121,000 71,400Explanation / Answer
variable cost per pint of apple sauce produced
= 72700 - 66100 / (127000 - 67000)
= 0.11
total cost at 127000 units = 72700
variable cost at 127000 units = 127000 * 0.11 = 13970
fixed cost = 58730
COST EQUATION
total energy cost Y = 58730 + 0.11 X
2) energy cost = 58730 + (0.11 * 78000) = 67310
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