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Developing a cost function by High-Low method

Machine hours and electricity costs for Wells Industries for 2011 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


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.


Solution Preview

Highest level of activity=x2=3760 machine hours
Electricity cost at highest level of activity=y2=$15,500

Lowest level of ...

Solution Summary

Solution depicts the steps to develop a cost function for electricity costs by using High-Low method.