Question

Question 2 - Mixed cost analysis and prediction The number of X-rays taken and X-ray costs over the first nine months of 2019 are given below. January February March April X-Rays Taken 6,250 7,000 5,000 4,250 4,500 3,000 X-Ray Costs $28,000 $27,500 $23,000 $20,000 $22,000 $17,000 $18,000 $24,000 $26,000 May 3,750 June July August September 5,500 5,750 Required: Using the high-low method, estimate the cost equation for X-ray costs. (b) Using the cost equation you derived in (a), estimate the X-ray costs if 4,600 X-rays are taken. Prepare a scatterplot using the data given. Use Excel to fit a straight line through the data points. Write down the cost equation. Briefly explain why the cost equation you estimated using Excel is different from the one you estimated using the high-low method in (a).

Answer 1

a. Low : June: X-Rays Taken : 3,000: X - Ray Costs : $ 17,000.

High : February : X-Rays Taken : 7,000: X-Ray Costs: $ 27,500

Variable X-Ray Cost per X-Ray taken = $ ( 27,500 - 17,000 ) / ( 7,000 - 3,000) = $ 10,500 / 4,000 = $ 2.625 per X-Ray Taken.

Fixed cost per month = $ 17,000 - ( 3,000 x $ 2.625 ) = $ 9,125

Cost equation : 9,125 + 2.625 x, where x is the number of X-Rays Taken.

b. X-Ray costs if 4,600 X-rays are taken = $ 9,125 + ( 4,600 x $ 2.625 ) = $ 21,200