Question
Jeremiah Jones, a small service firm, uses the high-low method to estimate energy cost, which varies in relation to machine hours as follows: Month Machine
Jeremiah Jones, a small service firm, uses the high-low method to estimate energy cost, which varies in relation to machine hours as follows:
Month | Machine hours | Energy expense |
May | 120 | $1,450 |
June | 100 | $1,160 |
July | 150 | $1,700 |
August | 180 | $2,000 |
Required:
1. Using the high-low method identify the month that represents:
(a) the highest point, and (0. 5 mark)
(b) the lowest point (0. 5 mark)
2. Calculate the following:
(a) The variable cost rate per machine hour of energy (1.5 mark)
(b) The total fixed cost per month (1.5 mark)
3. Write the cost formula for Jeremiah Jones. Using the cost formula, calculate the total energy cost assuming the plant plans to use 210 machine hours in September. (1 mark)
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