Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below:

What is the constant for the estimated cost equation?
A) $277,500
B) $300,000
C) $165,000
D) $135,000

Question

Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below:

What is the constant for the estimated cost equation?
A) $277,500 
B) $300,000 
C) $165,000 
D) $135,000

Quizplus · Accepted Answer

Slope = ($300,000 - $277,500) / (3,000 - 2,500) = $45.00
Constant (using highest observation) = $300,000 - ($45.00 × 3,000 hours) = $165,000
Constant (using lowest observation) = $277,500 - ($45.00 × 2,500 hours) = $165,000

Taunton Company Uses the High-Low Method to Estimate Its Cost