Question

Question 2 (ahswer requirements a, b and c) (4 points for part a, 4 points for part b, 4 points for part c) Management believes that their electrical cost is a mixed cost that depends on machine-hours. Machine- Electrical Cost Hours 413 506 435 486 499 461 467 458 March April May une $7,371 $7,740 $7,447 Required: a. Use the high-low method to estimate the variable and fixed components of this cost. $7,704 August b. What is the cost estimation formula for this company? $7,571 c. Do you think the cost formula in part B would be accurate in estimating total costs at 485 machine hours? If so, what would be the estimated total cost? Ifthe formula would not be useful, explain why not

Answer 1

a) Variable cost per machine hour = Change in Cost/Change in machine hour

                                                   = (7740-7371)/(506-413)

Variable cost per machine hour =