Question

Googlish Imports needs to determine the variable utilities rate per machine hour in order to estimate cost for August. Relevant information is as follows.

Month	Machine Hours Worked				Utilities Cost
April		4,750				9,810
May		4,700				9,690
June		7,000				11,225
July		8,000				12,400

Googlish anticipates producing 5,500 units in August, each unit requiring 3.0 hours of machine time. The company uses the high-low method to analyze costs.

Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results

Answer 1

A)	Calculate the variable and fixed components of the utilities cost.
	Month	Machine hous Worked	Utilities Cost
	April	4,750	9810
	May	4,700	9690
	June	7,000	11225
	July	8,000	12400
	Variable Cost per Mhr	(Highest Activity Cost - Lowset Activity Cost)
		(Highest Activity Units - Lowset Activity Units)
		(12,400 - 9,690)
		(8,000 - 4,700)
		2,710
		3,300
	Variable Cost per Mhr	0.8212
	Fixed Cost	(High Cost - (Variable Cost per unit x High Activity Unit)
		OR
		(High Cost - (Variable Cost per unit x High Activity Unit)
	=	(12,400 - (0.8212 x 8,000)
	=	5,830
		OR
	=	(9,690 - (0.8212 x 4,700)
	=	5,830
B)	calculated the, estimate the utilities cost for August.
	Machine Hours           =	16,500	[5,500 Units x 3 Mhr p.u.]
	Variable Cost per Mhr	0.8212
	Total Variable Costs	13,550	[16,500 Mhrs x 0.8212]
	Total Fixed Costs	5,830
	Total Utilities Costs	19,380
C)	Compare the high-low method versus the visual-fit method
	Month	Machine hous Worked	Utilities Cost
	April	4,750	9810
	May	4,700	9690
	June	7,000	11225
	July	8,000	12400
	Variable Cost per Mhr	(Change in Cost)
		(Change Units)
		(12,400 - 11,225)
		(8,000 - 7,000)
		1,175
		1,000
	Variable Cost per Mhr	1.175
	Fixed Cost	(Total Cost - Total Variable Cost )
	=	(12,400 - (1.175 x 8,000)
	=	3,000
		OR
	=	(11,225 - (1.175 x 7,000)
	=	3,000
	calculated the, estimate the utilities cost for August.
	Machine Hours           =	16,500	[5,500 Units x 3 Mhr p.u.]
	Variable Cost per Mhr	1.175
	Total Variable Costs	19,388	[16,500 Mhrs x 1.175]
	Total Fixed Costs	3,000
	Total Utilities Costs	22,388
		High Low Cost Method	Visual Fit Method
	Variable Cost per Mhr	0.8212	1.175
	Total Variable Costs	13,550	19,388
	Total Fixed Costs	5,830	3,000
	Total Utilities Costs	19,380	22,388