36. High-Low Method. Castilla Company produces smartphones. Management wants to estimate the cost of production equipment used to produce smartphones. The company reported the following monthly cost data related to production equipment: Reporting Period (Month) Total Costs Machine Hours January $920,000 45,000 February 600,000 25,000 March 500,000 20,000 April 1,100,000 90,000 May 95,000 June 30,000 1,140,000 620,000 880,000 910,000 38,000 48, July August September October 1,060,000 78,000 960,000 51,000 November 1,400,000 96,000 54,000 December 980,000 Required: a. Use the four steps of the high-low method to estimate the total fixed cost per month and the variable cost per machine hour. State your results in the cost equation form Y= f + VX by filling in the dollar amounts for f and v. b. What would Castilla Company's estimated costs be if it used 50,000 machine hours next month? c. What would Castilla Company's estimated costs be if it used 15,000 machine hours next month? Why might you feel uncomfortable estimating costs for 15,000 machine hours? Round v to the nearest cent and all other amounts to the nearest dollar. 36. High-Low Method a. Step 1: Identify the high and low activity levels from the data set. The high data point dollar amount is: $1,400,000 The high data point activity level is: 96,000 The low data point dollar amount is: The low data point activity level is: Step 2: Calculate the variable cost per unit (v); units are measured in machine hours. Unit variable cost (v) Change in cost Change in activity hours hours per machine hour (rounded to nearest cent) Step 3: Calculate the total fixed costs(). Use the low activity level data point for your calculation: Total fixed costs - Step 4: State the results in equation form Y = f +vX. Y b. Using the equation from step 4 above, substitute machine hours for X and solve for Y: Y Y Using the equation from part a, substitute machine hours for X and solve for Y: Y Y hours) c. hours) Choose from the possible answers below using the dropdown menu: a. 15,000 machine hours is likely within the relevant range so there is no concern with the estimate. b. 15,000 machine hours is likely outside of the relevant range so this estimate may be inaccurate. c. There is no concern with this calculation since we are using historical data to make the estimate. d. 15,000 machine hours is much higher thanprevious months so the estimate may be inaccurate