In: Accounting

# 2) Terrell Corporation has the following data relating to its power usage for the first six...

2) Terrell Corporation has the following data relating to its power usage for the first six months of the current year.

 Month Usage (Kw)Cost Jan. 500 $450 Feb. 550 455 Mar. 475 395 Apr. 425 310 May 450 380 June 725 484 Assume usage is within the relevant range of activity. Required:  a. Using the high-low method, compute the cost formula. b. Terrell Corporation estimates its power usage for July at 660 watts. Compute the total power cost for July. ## Solutions ##### Expert Solution • All working forms part of the answer • HIGH LOW METHOD Working  Months Units Cost High Level June 725$                         484.00 Low Level April 425 $310.00 Difference 300$                         174.00

 A Difference in Cost $174.00 B Difference in units 300 C = A/B Variable cost per unit$                             0.58

 Working High Level Low Level A Total Cost $484.00$                         310.00 B Total Units 725 425 C Variable cost per unit $0.58$                             0.58 D = B x C Total Variable cost $420.50$                         246.50 E = A - D Total Fixed Cost $63.50$                           63.50

• Requirement ‘a’

Cost Formula: Total Cost = Fixed Cost + (Variable cost per unit x Usage)
= $63.50 + ($ 0.58 x Usage)

• Requirement ‘b’

Total power cost to July = $63.50 + ($ 0.58 x 660)
= 63.50 + 382.80

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