Question

This exercise will be an application of the Hi-Lo method and its use in forecasting future costs:

The ZZ Company wants to forecast their utility costs for next year (2017). There is a relationship between the number of welds and the number of applications of glue and the total cost of utilities for the business. For 20x6 the activity and utility cost for the various months are as follows:

	Number of Welds	Utilities Cost		Number of Applications	Utilities Cost
January	60	2200	January	60	1800
February	70	2600	February	70	2100
March	90	2900	March	90	2700
April	120	3300	April	120	3600
May	100	3000	May	100	3000
June	130	3600	June	130	3900
July	150	4000	July	150	4500
August	140	3600	August	140	4200
September	110	3100	September	110	3300
October	80	2500	October	80	2400

The forecasted activity for 20x7 is as follows:

		Estimated Number of Welds			Estimated Number of Applications
January		50	January		50
February		85	February		85
March		100	March		100
April		110	April		110
May		95	May		95
June		135	June		135
July		165	July		165
August		125	August		125
September		115	September		115
October		90	October		90

Calculate the total forecasted utility cost for 2017 for the following:

The total utility cost for welds

The total utility cost for applications

The total utility cost

Answer 1