Jersey Subs. Inc. wants to find an equation to estimate monthly utility costs. J

Question

Jersey Subs. Inc. wants to find an equation to estimate monthly utility costs. Jersey Subs has been in business for one year and has collected the following cost data for utilities: Which of the preceding costs is variable? Fixed? Mixed? Explain. Using the high-low method. determine the cost function for each cost. Combine the preceding information to gel a monthly utility cost function for Jersey. Next month, Jersey Subs expects to use 2,200 kilowatt hours of electricity. make 1.500 minutes of telephone calls, and use 32.000 gallons of water. Estimate total cost of utilities for the month. Bolder Bikes, Inc. manufactures mountain bike frames in Boulder. Colorado. In 2012. they produced 24,000 frames at a total cost of $1,296,000. Frames Unlimited. Inc. has offered to supply as many frames as Boulder Bikes wants at a cost of $49.50. Boulder Bikes anticipates needing 26.000 frames each year over the next few years. Boulder Bikes uses historical cost data to come up with the following regression equation with total manufacturing costs of the frame as the dependent variable and frames produced as the independent variable:

Explanation / Answer

part 1

Answer 1

Fixed cost is water bill

variable cost id electricity bill

Mixed cost is telephone bill

Answer 2

High-Low method is one of the several techniques used to split a mixed cost into its fixed and variable components

IN telephone bill

=> (9934-9009) / (1571-1069)

=> 1.84 per unit

fixed => 9934 - (1.84 *1571) = 9009- (1.84*1069) => 7039

hish low cost method equation y=> 7039 + 1.84x

Answer 4

2200. wattt of electricity , 1500 min of telephone + 32000 gallons of water

cost => 2200*0.3 + (1500*1.84)+7039 + 7500

Total Cost => $17959

Part 2

Answer a

y=$545,000 + 21X

We jave X=26000.

So y = 545,000 + 21*26000 = $1,091,000

Answer b.

We have y = $1,296,000 & X=24,000

By putting value of X, we get y = 545,000+24000*21 = $1,049,000

So we see that the historical data is no longer valid.

We now try to find teh Var cost per frame bu tweaking the above eqn & assuming that Fixed costs of $545,000 haven't changed but Var costs (V) have changed.

So we get y=545,000+24000*V = 1296,00

Solving for V, we get V = (1296000-545,000)/24000 = $31 per frame

So Mfg cost for Frame is $31...up from earlier $21

But acuiring cost of frame is $49.50 which is 49.50-31 = 18.50 more than own mfgd frame.

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