Question

Machine hours and electricity costs for Wells Industries for last year were as follows:

	Machine	Electricity
Month	Hours	Costs
January	2,000	$ 9,200
February	2,320	10,500
March	1,520	6,750
April	2,480	11,500
May	3,040	14,125
June	2,640	11,000
July	3,280	12,375
August	2,800	11,375
September	1,600	7,750
October	2,960	13,000
November	3,760	15,500
December	3,360	13,875

Required: Show your Calculations!

A.	Using the high-low method, develop an estimate of variable electricity costs per machine hour.
B.	Using the high-low method, develop an estimate of fixed electricity costs per month.
C.	Using the high-low method, develop a cost function for monthly electricity costs.
D.	Estimate electricity costs for a month in which 3,000 machine hours are worked.

Question 41 options:

Answer 1

			Machine	Electicity
			hours	cost
		high	3,760	15,500
		low	1,520	6,750
	Difference		2,240	8,750
A	Variable cost per MH =8750/2240
			3.91
B	Fixed electicity costs per month
	15,500 - (3760*3.91)
	798.4
C	Cost Function
	y                = a + bx
	total cost (y) = 798.40 + 3.91x
	total electricity cost = 798.40 +3.91 machine hours
d	Estimated Electricity cost
	798.40 +3.91*3000
	12528.4	answer