A company’s electricity cost is a mixed cost - partly fixed and partly variable.

Question

A company’s electricity cost is a mixed cost - partly fixed and partly variable. If during the month with the largest electricity use the company used 15,000 machine hours and had an electricity cost of $36,000 and during the month with the smallest electricity use the company used 7,000 machine hours and had an electricity cost of $20,000.

Its variable cost per machine hour (as determined by the high-low method) would be ____________

Its fixed cost per month (as determined by the high-low method using the high numbers) would be _____________________

Its fixed cost per month (as determined by the high-low method using the low numbers) would be _____________________

Write the equation for estimating the monthly electricity cost.

What would you estimate would be the electricity cost for a month when 9,000 machine hours were used?

Explanation / Answer

Variable cost per machine hour=(36000-20000)/(15000-7000)= $2 Fixed cost per month=36000-(15000*2) = $6000 Equation for estimating the monthly electricity cost=6000+$2X Electricity cost =6000+(9000*2) = $24000

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