Shannon Corporation wants to find an equation to estimate some of their monthly operating costs for the operating budget for 2018. The following cost and other data were gathered for 2017:

	Maintenance	Machine	Health	Number of	Shipping	Units
Month	Costs	Hours	Insurance	Employees	Costs	Shipped
January	$4,570	159	$8,620	64	$21,180	7,060
February	$4,565	90	$8,620	71	$24,540	8,180
March	$4,655	237	$8,620	93	$23,760	7,920
April	$4,800	313	$8,620	107	$19,440	6,480
May	$5,160	456	$8,620	88	$17,790	5,930
June	$4,723	290	$8,620	90	$27,600	9,200
July	$4,905	337	$8,620	97	$26,280	8,760
August	$4,921	356	$8,620	86	$25,380	8,460
September	$5,044	427	$8,620	98	$20,220	6,740
October	$5,282	481	$8,620	107	$21,450	7,150
November	$5,665	530	$8,620	96	$16,860	5,620
December	$4,751	274	$8,620	102	$29,040	9,680

1.	Which of the preceding costs is variable? Fixed? Mixed? Explain.
2.	Using the high-low method, determine the cost function for each cost.
3.	Combine the preceding information to get a monthly operating cost function for the Shannon Corporation.
4.	Next month, Shannon expects to use 420 machine hours, have 120 employees, and ship 9,500 units. Estimate the total operating cost for the month.

Requirement 2. Using the high-low method, determine the cost function for each cost.

Begin by selecting the general formula that represents the linear cost function for each cost.

Maintenance

y = a + bX

Health insurance

y = a

Shipping costs

y = bX

Now determine the cost function for each cost. (Enter all values in the same format as the general linear formula. If a box is not used in the equation, leave the box empty; do not enter a zero or select a label.)

Cost function

Maintenance

y =

+

per machine hour

Health insurance

y =

+

Shipping costs

y =

+

per unit shipped

Requirement 3. Combine the preceding information to get a monthly operating cost function for the Shannon Corporation.

Monthly

operating cost

=

+

per machine hour

+

per unit shipped

Requirement 4. Next month, Shannon expects to use 420 machine hours, have 120 employees, and ship 9,500 units. Estimate the total operating cost for the month.

Monthly operating cost

= $