Georgia Meadows Company uses the high-low method to analyze production costs. Th

Question

Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year. Month Cost(Y) Hours(H) January $8,542 6,530 February $7,750 5,950 March $9,700 7,500 April $7,435 5,700 May $7,200 5,500 June $9,263 6,750 How should the cost function be properly stated using the high-low method? Y = $9,263 + $0.162H. Y = $325 + $1.25H. Y = $1,025 + $1.25H. Y = $875 + $1.05H. Can you please explain how you get to this answer...thank you!

Explanation / Answer

hours cost High 7,500 9,700 low 5,500 7,200 Difference 2,000 2,500 Variable cost per unit = 2500/2000 1.25 Fixed cost = 9700 - (7500*1.25) 325 cost function Y = a +bx Y         = 325 + 1.25 H answer

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