The controller of Rather Production has collected the following monthly expense data for analyzing the cost behavior of electricity costs.

Instructions

a. Determine the fixed- and variable-cost components using the high-low method.

b. What electricity cost does the cost equation estimate for a level of activity of 500 machine hours? By what amount does this diff er from March’s observed cost for 500 machine hours?

c. What electricity cost does the cost equation estimate for a level of activity of 700 machine hours? By what amount does this diff er from June’s observed cost for 700 machine hours?

Transcribed Image Text:

Total Total Electricity Costs Machine Hours January $2,500 300 February 3,000 350 March 3,600 500 April May June 4,500 3,200 4,900 4,100 690 400 700 July August September 650 3,800 520 5,100 4,200 680 October 630 November 3,300 350 December 5,860 720