Question

Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the company's energy cost behavior. The following costs were incurred during the past 12 months: Month January February March April May June July August September October November December Pints of Applesauce Produced 118,000 76,000 79,000 85,000 103,000 109,000 133,000 103,000 103,000 97,000 136,000 130,000 Energy Cost $71,500 66,400 68,600 69,300 70,000 70, 700 71,200 69, 700 70,300 69,400 73,600 71,850 Required: 1. Use the high-low method to estimate the company's energy cost behavior and express it in equation form. Use the formula Y= a + bX, where Y denotes energy cost for a month and X denotes pints of applesauce produced. 2. Predict the energy cost for a month in which 87,000 pints of applesauce are produced. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the high-low method to estimate the company's energy cost behavior and express it in equation form. Use the formula Y = a + bx, where Y denotes energy cost for a month and X denotes pints of applesauce produced. (Round coefficient of X to 2 decimal places.) Total energy cost =

Answer 1

1) Variable cost per applesauce produced = Change in Cost/Change in unit = (73600-66400)/(136000-76000) = 0.12

Fixed cost = 73600-(136000*.12) = 57280

Total energy cost = 57280+0.12X

2) Total energy cost = 57280+0.12*87000 = $67720