Question

King Wa Restaurant would like to estimate the variable and fixed components of its utilities costs and has compiled the following data for the last five months of operations.

	Month	Meals served	Utilities costs
	December	560	$372.00
	January	300	$333.40
	February	220	$317.40
	March	400	$357.70
	April	600	$382.00

Required: Use the information above to answer the following questions:

1.Use the high-low method to derive the cost formula Y = a + bx

I have got the question 1's answer it is Y=280+0.17x

I just want to get help for question 2 and 3

2.Are there any outliers? i.e. pairs of meals and costs that are not close to the cost formula you came up with in 1(a). Prove your response by showing calculations for each month to support.

3.Regardless of your answer to (c) what would the existence of an outlier mean in terms of using the high low method as a means of predicting total cost?2.Are there any outliers? i.e. pairs of meals and costs that are not close to the cost formula you came up with in 1(a). Prove your response by showing calculations for each month to support.

Answer 1

2. Yes, there are outliers as shown in the month-wise calculations below.

Month	Meals served	Utilities costs $	Total cost (using cost formula)
December	560	372.00	$280 + (560 x 0.17)	375.20	Outlier
January	300	333.40	$280 + (300 x 0.17)	331.00	Outlier
February	220	317.40	$280 + (220 x 0.17)	317.40
March	400	357.70	$280 + (400 x 0.17)	348.00	Outlier
April	600	382.00	$280 + (600 x 0.17)	382.00

3. An outlier is the volume at which the total cost is higher or lower than the total cost calculated using the cost formula derived per the high-low method.