Question

Moresan Co. gathered the following information on power costs and factory machine usage for the last six months:

Month	Power Costs $	Factory Machine Hours
January	18,000	10,000
February	16,650	9,000
March	18,600	10,600
April	16,200	8,800
May	17,100	9,500
June	16,900	9,350

Using the high-low method of analyzing costs, ans

Using the high-low method of analyzing costs, answer the following questions, and show computations to support your answers.

(1) Compute

     a) the variable cost (5 points)

     b) fixed cost elements  (5 pints)

using the high-low method.

(2) Using one sentence, interpret and explain what the variable cost that you calculated in part (1.a) means to you (3 points)

(3) Using the information from part (1), write the cost formula (2 points).

(4) If it is estimated that 9,000 factory machine hours will be run in July, what is the expected total power cost for July? By what amount does this differ from February's observed cost for 9,000 machine hours? (5 points)

wer the following questions, and show computations to support your answers.

Answer 1

		Machine	power
		hours	costs
high		10,600	18,600
low		-8,800	-16,200
difference		1,800	2,400
1a)	Variable cost per unit
	2400/1800
	1.33
b)	Fixed cost element
	total cost - variable cost
	18,600 -10600*1.33
	4467
2)	Variable cost per unit remains same but varies in total
	with change in production volume
3)	cost formula
	4467	+	1.33	x
4)	4667 + 1.33*9000
	16667
	difference of 16667-16650
		17
	( I have used un rounded variable cost per unit , if rounded
	cost per unit is used answer will be slightly different