Use the high-low method to answer the following question related to estimating the line equation that represents the data (show work and circle answers).

1. Calculate b (slope of the equation). Round to nearest penny.

2. Calculate a (intercept of the equation). Round to nearest dollar. As discussed in class, due to rounding, your answers might be slightly different if you try both the high and low levels to calculate a.

3. Show the estimated line equation in the form Y = a + bX. If you obtained due slightly different answers in part 2 due to rounding, using either one is acceptable here.

EXAMPLE: Kohlson Company has incurred the following shipping costs over the past eight months: Units Shipping Sold Cost January.. 6,000 February... 5,000 March .. 7,000 9,000 8,000 June. . 10,000 $66,000 $65,000 $70,000 $80,000 $76,000 $85,000 July . 12,000 $100,000 $87,000 April .. May. ...... ..... .......... August... 11,000 With the high-low method, only the periods in which the lowest activity and the highest activity occurred are used to estimate the variable and fixed components of the mixed cost. Shipping Cost 12,000 $100,000 65,000 7,000 $ 35,000 Units Sold High activity level, July.. Low activity level, February Change... ..... 5,000 Change in cost $35,000 Variable cost=. =$5 per unit Change in activity 7,000 units Fixed cost = Total cost - Variable cost element = $100,000 - (12,000 units x $5 per unit) = $40,000 %3D The cost formula for shipping cost is: Y = $40,000 + $5X