Develop a linear equation
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Chapter 3, problem 3-41
High-Low Method
Manchester Foundry produced 45,000 tons of steel in March at a cost of £1,150,000. In April, the foundry produced 35,000 tons at a cost of £950,000. Using only these two data points, determine the cost function for Manchester.
Month Cost Production (in tons)
High : March £1,150,000 45,000
Low: April £950,000 35,000
Difference 200,000 10,000
Variable cost = (Change in costs)/(Change in production)
= 200,000/10,000 = 20
Fixed cost (High) X = £1,150,000 - 20*45000 = 1,150,000 - 900,000 = £250,000
Fixed cost (Low) X = £950,000 - 20*35000 = 250,000
Thus Cost function is
Y = 250,000 per month + (20* production in tons)
(a.) Develop a linear equation (model) using the high low and point slope method of linear model development.
(b.) How does the slope in part 'a' affect the marginal cost of this product? Use your model results and to support your answer to this question.
(c.) Next predict 'y' using the model in part 'a' when x = 75,000 tons. Be sure to show your work.
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The solution explains how to develop a linear equation using high low method.
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Chapter 3, problem 3-41
High-Low Method
Manchester Foundry produced 45,000 tons of steel in March at a cost of £1,150,000. In April, the foundry produced 35,000 tons at a cost of £950,000. Using only these two data points, determine the cost function for Manchester.
Month Cost Production (in tons)
High : March ...
Purchase this Solution
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