Refer to the data in Exercise 6–1.

1.		Kilometres Driven	Total Annual Cost*
	High level of activity.......................................................	105,000	$13,298
	Low level of activity........................................................	70,000	10,150
	Change..........................................................................	35,000	$ 3,148

*	105,000 kilometres × $0.12665 per kilometre= $13,298
	70,000 kilometres × $0.145 per kilometre = $10,150

                   Variable cost per kilometre:

Required:

1. Prepare a scattergraph by plotting custodial supplies expense on the vertical axis and occupancy-days on the horizontal axis. Fit a regression line to your plotted points by visual inspection.

2. What is the approximate monthly fixed cost? The approximate variable cost per occupancy-day?

3. Scrutinize the points on your graph, and explain why the high–low method would or would not yield an accurate cost formula in this situation.

Transcribed Image Text:

Custodial Supplies Expense Month Occupancy-Days March 18,000 $2,500 April 12,500 19,250 May 15,000 20,900 June 28,500 28,850 July 24,000 27,100 August 19,000 22,750 September 14,500 20,750