Davies Company\'s Utility Cost at various levels of activity are shown below: Mo

Question

Davies Company's Utility Cost at various levels of activity are shown below:

Month           Units        Utility Cost

April              70,000      $198,000

May               60,000      $174,000

June               80,000      $222,000

July                 90,000      $246,000

Requirement 1: Given the above information, use the High-Low method to compute the variable and fixed portion of utility cost. Show your computations and indicate the cost equation. (5 points)

Requirement 2: Using the equation from requirement 2, compute total cost estimate if 75,000 units are produced. Show your computations.

Explanation / Answer

Requirement 1 units utilitiy costs high 90,000 246,000 low 60,000 174,000 difference 30,000 72,000 variable cost per unit = 72,000/30,000 2.4 fixed cost = total cost- variable cost 246000 - 90000*2.4 30000 cost Equation Y = a + bx Y = 30,000 + 2.4 X Requirement 2 total cost estimate if 75000 units are produced Y = 30,000+2.4X     = 30,000   + 75000*2.4 210000 answer

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