Kim is looking over the information in Table 1 that shows eight months of cost o
ID: 2566532 • Letter: K
Question
Kim is looking over the information in Table 1 that shows eight months of cost of the maintenance department. He needs to develop a cost estimation formula that will allow him to estimate costs given expected hours.
Table 1
Month
Hours
Cost
1
760
$36,375.00
2
625
$38,000.00
3
875
$41,750.00
4
800
$42,360.00
5
1175
$55,080.00
6
1050
$48,100.00
7
1500
$59,000.00
8
1375
$56,800.00
Required:
Use the high low method to compute questions a-d.
What is the estimated variable cost per hour?
What is the estimated fixed cost?
What is the cost estimation formula?
If hours are expected to 1000, what would be your estimate of the cost?
Month
Hours
Cost
1
760
$36,375.00
2
625
$38,000.00
3
875
$41,750.00
4
800
$42,360.00
5
1175
$55,080.00
6
1050
$48,100.00
7
1500
$59,000.00
8
1375
$56,800.00
Explanation / Answer
Total cost at 625 Hours (Low) $ 38,000 Total cost at 1500 hours (High) $ 59,000 Variable cost per hour = Change in Cost / Change in Hours ( 59000 -38000) / ( 1500 -625) = $21.714 per hour Fixed Cost: Total cost at 625 hours 38,000 Less: variable cost (625 hours@21.714) 13571 Fixed Cost: 24,429 Cost Estimation Formula Let Hours Used be X hours Therefore, Total Cost = 24,429 + 21.714 X Hours worked is 1000 hours, then Total Cost = 24429 + 21.714 *1000 = 24429+21714 = $46,143
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