High Low Method
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Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
Number of units produced
Total maintenance costs
January -------------
4,400
$4,200
February -----------
6,800
5,400
March --------------
4,900
4,500
April ----------------
5,600
4,900
May -----------------
6,000
5,490
Using the high/low method, what is the cost equation to predict total maintenance costs?
Y = $2,000 + $.50x
Y = $2,400 + $.50x
Y = $4,200 + $.40x
Y = $4,200 + $.50x
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Solution Summary
The solution explains the use of high low method in estimating the cost function.
Solution Preview
In the high low method we use the highest and the lowest values
Type Units Cost
High 6,800 ...
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