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Fixed and variable costs with the Scattergraph method

Month Machine Hours Utility Cost
Jan 200 $300
Feb 325 440
March 400 480
April 410 490
May 525 620
June 680 790
July 820 840
Aug 900 900

1. Determine the fixed and variable costs using:
A. Scattergraph Method
B. High-Low Method

2. Determine the cost formula using both methods.

3. Within the relevant range, can the formula be reliably used to predict utility cost? Can the a and b values in the cost formula be interpreted as fixed and variable costs? Why or why not?

4. Using both formulas predict the utility cost in a month the uses 850 machine hours?

Solution Preview

Please see attachment.

HIGH LOW METHOD

Month Machine Hours Utility Cost
Jan 200 300
Feb 325 440
Mar 400 480
Apr 410 490
May 525 620
Jun 680 790
Jul 820 840
Aug 900 900

1. Determine the fixed and variable costs using:
A. Scatter graph Method

Fixed cost $145.36
Variable cost $0.87

B. High-Low ...

Solution Summary

The fixed and variable costs with the scattergraph methods are examined.

$2.19