Problem 5-1A

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

Total

Electricity CostsTotal

Machine HoursJanuary$2,500300February3,000350March3,600500April4,500690May3,200400June4,900700July4,100650August3,800520September5,100680October4,200630November3,300350December5,860720

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

Fixed-costs$-

Variable-costs$-

.

What electricity cost does the cost equation estimate for a level of activity of 500 machine hours?

Electricity costs$-

By what amount does this differ from March's observed cost for 500 machine hours?

Amount differ$-

SHOW SOLUTION

What electricity cost does the cost equation estimate for a level of activity of 700 machine hours?

Electricity costs$-

By what amount does this differ from June's observed cost for 700 machine hours?