Question

Davies Company's Utility Cost at various levels of activity are shown below:

Month           Units        Utility Cost

April              70,000      $198,000

May               60,000      $174,000

June               80,000      $222,000

July                 90,000      $246,000

Requirement 1: Given the above information, use the High-Low method to compute the variable and fixed portion of utility cost. Show your computations and indicate the cost equation. (5 points)

Requirement 2: Using the equation from requirement 2, compute total cost estimate if 75,000 units are produced. Show your computations.

Answer 1

	Requirement 1
				units	utilitiy
					costs
	high			90,000	246,000
	low			60,000	174,000
	difference			30,000	72,000
	variable cost per unit =			72,000/30,000
				2.4
	fixed cost = total cost- variable cost
		246000 - 90000*2.4
		30000
	cost Equation
	Y	=	a	+	bx
	Y	=	30,000	+	2.4	X
	Requirement 2
	total cost estimate if 75000 units are produced
	Y = 30,000+2.4X
	= 30,000   + 75000*2.4
	210000	answer