Question

Oriole, Inc., has collected the following information on its cost of electricity:

		Machine Hours		Total Electricity Costs
January		500		$240
February		540		$300
March		370		$210
April		440		$220
May		680		$290
June		730		$330
July		330		$180
August		530		$260
September		230		$118
October		740		$340
November		860		$370
December		600		$340

Using the high-low method, compute the variable cost of electricity per machine hour. (Round unit cost to 2 decimal places, e.g. 52.75.)

Variable cost

$   per machine hour

  

  

Compute the total fixed cost of electricity. (Round answer to 2 decimal places, e.g. 52.75.)

Fixed cost

$

  

  

Represent the electricity cost function in equation form. (Round answers to 2 decimal places, e.g. 52.75.)

Total cost =

$  × MH

+

$

  

  

What is the expected electricity cost when 740 machine hours are used? (Round answer to 2 decimal places, e.g. 52.75.)

Total cost

$

Answer 1

Variable cost per machine hour= (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (370-118)/(860-230)

= 252/630

= $0.4 per machine hour

Variable cost

$0.4 per machine hour

Fixed cost = Highest activity cost - Highest activity x Variable cost per hour

= 370 - 860 x 0.4

= 370-344

= $26

Fixed cost

$26

the electricity cost function in equation form:

Total cost =

$0.4 × MH

+

$26

  

Total expected electricity cost when 740 machine hours are used:

= Variable cost per hour x Activity hour + Fixed cost

= 0.4 x 740 + 26

= 296+26

= $322

Total cost

$322

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