Roger Frederick, financial analyst at QTY Corporation, is examining the behavior of quarterly utility costs for budgeting purposes. Frederick collects the following data on machine-hours worked and utility costs for the past 8 quarters

Quarter	Machine-Hours		Utility Costs
1	115,000		$245,000
2	70,000		180,000
3	105,000		230,000
4	130,000		285,000
5	85,000		200,000
6	120,000		265,000
7	110,000		255,000
8	95,000		225,000

1.	Estimate the cost function for the quarterly data using the high-low method.
2.	Plot and comment on the estimated cost function.
3.	Frederick anticipates that QTY will operate machines for 120,000 hours in quarter 9. Calculate the predicted utility costs in quarter 9 using the cost function estimated in requirement 1.

Requirement 1. Estimate the cost function for the quarterly data using the high-low method. (Complete all answer boxes.)

Y

=

+

X

(After you hit continue, the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step.)

Requirement 2. Plot and comment on the estimated cost function.

Plot the line for the estimated cost function using the high-low method. The data points for the 8 quarters have already been entered in for you. (Enlarge the graph and use the line button displayed below to draw the graph.)

Comment on the estimated cost function by choosing the correct statement to go with each of the evaluation criteria listed below.

Economic plausibility:

A. The cost function shows a positive economically plausible relationship between machine-hours and utility costs. There is a clear-cut relationship of higher machine-hours and utility costs.

OR

B. The cost function shows a negative economically plausible relationship between machine-hours and utility costs. There is not a clear-cut relationship of higher machine-hours and utility costs.

Goodness of fit:

A. The high-low line appears to "fit" the data well. The vertical differences between the actual and predicted costs appear to be quite small.

OR

B. The high-low line appears to not "fit" the data well. The vertical differences between the actual and predicted costs appear to be quite large.

Slope of high-low line:

A. The slope of the line appears to be reasonably steep indicating that, on average, utility costs in a quarter vary with machine-hours used.

OR

B.The slope of the line appears to be unreasonably steep indicating that, on average, utility costs in a quarter do not vary with machine-hours used.

Requirement 3. Frederick anticipates that QTY will operate machines for 100,000 hours in quarter 9. Calculate the predicted utility costs in quarter 9 using the cost function estimated in requirement 1.

The predicted maintenance costs would be $

____

for quarter 9.