Exercise 6-25 Estimating Cost Behavior; High-Low Method (LO 6-1, 6-2, 6-5)

Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the companys energy cost behavior. The following costs were incurred during the past 12 months:

Month	Pints of Applesauce Produced			Energy Cost
January		106,000			$	70,300
February		64,000				64,000
March		67,000				66,200
April		73,000				67,500
May		91,000				68,800
June		97,000				70,100
July		121,000				70,000
August		91,000				68,500
September		91,000				69,100
October		85,000				68,200
November		124,000				72,400
December		118,000				71,250

Required: 1. Use the high-low method to estimate the companys energy cost behavior and express it in equation form. Use the formula Y = a + bX, where Y denotes energy cost for a month and X denotes pints of applesauce produced. 2. Predict the energy cost for a month in which 75,000 pints of applesauce are produced.