Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$ 8,542 & 6,530 \
\text { February } & \$ 7,750 & 5,950 \
\text { March } & \$ 9,700 & 7,500 \
\text { April } & \$ 7,435 & 5,700 \
\text { May } & \$ 7,200 & 5,500 \
\text { June } & \$ 9,263 & 6,750
\end{array}$How should the cost function be properly stated using the high-low method?
A) Y = $1,025 + $1.25H.
B) Y = $875 + $1.05H.
C) Y = $325 + $1.25H.
D) Y = $9,263 + $0.162H.

Question

Georgia Meadows Company uses the high-low method to analyze production costs. The following information relates to the production data for the first six months of the year.$\begin{array}{llll}\text { Month } & \operatorname{Cost}(\mathrm{Y})&\operatorname{Hours}(\mathrm{H})\
\text { January } & \$  8,542 & 6,530 \
\text { February } & \$  7,750 & 5,950 \
\text { March } & \$  9,700 & 7,500 \
\text { April } & \$  7,435 & 5,700 \
\text { May } & \$  7,200 & 5,500 \
\text { June } & \$  9,263 & 6,750
\end{array}$How should the cost function be properly stated using the high-low method?
A) Y = $1,025 + $1.25H.
B) Y = $875 + $1.05H.
C) Y = $325 + $1.25H.
D) Y = $9,263 + $0.162H.

Quizplus · Accepted Answer

The high-low method uses the highest and lowest activity levels to estimate the variable cost per unit and fixed costs. The highest cost is $9,700 at 7,500 hours, and the lowest cost is $7,200 at 5,500 hours. The variable cost per hour is ($9,700 - $7,200) / (7,500 - 5,500) = $1.25. The fixed cost is calculated using either the high or low point: $9,700 - ($1.25 * 7,500) = $325. Thus, the cost function is Y = $325 + $1.25H.

Georgia Meadows Company Uses the High-Low Method to Analyze Production