I have been unsuccessful for two hours on this problem. Please help. I prefer to

Question

I have been unsuccessful for two hours on this problem.  Please help. I prefer to understand the process more than just receiving a solution. Thank you !!!!!

Required:

A.  Use the high/low method to determine the company's utility cost equation. When required, carry the amount out to three decimal places.
$ +  $ (Units produced)

B.  What would be the expected utility cost of producing 120,000 units? (The relevant range is 85,000 to 125,000 units of production.)
$

C.  Using the data shown and a spreadsheet program, perform a regression analysis. Discuss any differences in the results and the potential impact on decision making.

Tools Are Us Corporation produces toolboxes used by construction professionals and homeowners. The company is concerned that it does not have an understanding of its utility consumption. The company's president, George, has asked the plant manager and cost accountant to work together to get information about their utilities cost. The two of them accumulated the following data for the past 14 months (production volume is presented in units): Required: Use the high/low method to determine the company's utility cost equation. When required, carry the amount out to three decimal places. (Units produced) What would be the expected utility cost of producing 120,000 units? (The relevant range is 85,000 to 125,000 units of production.) Using the data shown and a spreadsheet program, perform a regression analysis. Discuss any differences in the results and the potential impact on decision making.

Explanation / Answer

A.
Highest production level: September, 115,000
Lowest production level: March, 90,000

slope = difference in September and March's costs divided by difference in septemer and march's production

slope = (1619 - 1469)/(115,000 - 90,000) = 150/25,000

slope = .006

y-intercept (using september) = 1619 - .006*115,000

y-intercept = 929

Answer in first blank: $929

Answer in second blank: $0.006 (units produced)

(the equation is costs = 929 + .006*units produced)

B. Using the equation, cost = 929 + .006*units produced

929 + .006*120,000 = 1649

answer: $1649

C. Regression in excel gives the equaiton:

cost = 513.6204285 + 0.010257665*units produced

This line has a higher slope, .010 versus .006, and a lower intercept, 513 versus 929. The results from the high-low method would suggest that the number of units produced has less of an effect on the cost than it does using regression, and regression is more accurate, since all 12 months are taken into cosideration instead of just two months as in the high low method.

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