ABC Company uses the high-low method to analyze cost behavior and has determined
ID: 2423127 • Letter: A
Question
ABC Company uses the high-low method to analyze cost behavior and has determined that machine hours best predict the company's total utilities cost. Determine the cost function (formula) for total utilities cost. What will the estimated utility cost be if ABC Company uses 1750 machine hours in a month?
Total Cost
Machine Hours
January
$3,450
1020
February
$3,720
1110
March
$3,467
1010
April
$3,730
1270
May
$4,900
1320
June
$4,232
1460
Total Cost
Machine Hours
January
$3,450
1020
February
$3,720
1110
March
$3,467
1010
April
$3,730
1270
May
$4,900
1320
June
$4,232
1460
Explanation / Answer
Cost at highest level of activity 4,232.00 Cost at Lowest level of activity 3,467.00 Highest level of activity 1,460.00 Lowest Level of activity 1,010.00 Variable cost per unit = (4232 - 3467)/(1460-1010) Variable cost per unit = 765/450 Variable cost per unit = 1.70 Fixed Costs = 3467 - 1010*1.70 Fixed Costs = 3467 - 1717 Fixed Costs = 1750 If co uses 1750 hours Monthly Variable costs = 1.70*1750 Monthly Variable costs = 2975 Total Costs = 2975 + 1750 Total Costs = 4725
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