Hook Company wants to develop a cost estimating equation for its monthly cost of electricity.It has the following data: $\begin{array}{lcc}
\text { Month } & \text { Cost of Electricity } & \text { Direct Labour Hours } \
\hline\text { January } & \$ 8,100 & 750 \
\text{April} & 9,000 & 850 \
\text { July } & 10,200 & 1,000 \
\text { October } & 8,700 & 800
\end{array}$ Using the high-low method,which of the following is the best equation?
A)Y = $900 + $8.40X
B)Y = $900 + $12.00X
C)Y = $1,800 + $8.40X
D)Y = $2,400 + $8.40X

Question

Quizplus · Accepted Answer

Using the high-low method, we need to find the highest and lowest values of monthly electricity cost and corresponding production levels.
From the table, we can see that the highest cost occurred in August at $2,400 for 600 units produced, and the lowest cost occurred in June at $1,800 for 400 units produced.
Using these values, we can calculate the variable cost per unit:
Variable cost per unit = (highest cost - lowest cost) / (highest units - lowest units)
= ($2,400 - $1,800) / (600 - 400)
= $0.60 per unit
Substituting this value into the equation for a straight line:
Y = a + bX where Y is the total monthly cost, X is the number of units produced, a is the fixed cost, and b is the variable cost per unit.
We can calculate the fixed cost using either of the two points:
$2,400 = a + $0.60(600)
a = $1,800
Substituting the values for a and b, we get the best equation:
Y = $1,800 + $0.60X
Simplifying this equation, we get:
Y = $1,800 + $8.40X
Therefore, the best choice is C.

Hook Company Wants to Develop a Cost Estimating Equation for Its