Jersey Subs, Inc. wants to find an equation to estimate monthly utility costs. Jersey Subs has been in business for one year and has collected the following cost data for utilities:
|Month||Electricity Bill||Kilowatt Hours Used||Telephone||Minutes Used||Water Bill||Water Used|
b. Using the high-low method, determine the cost unction for each cost.
c. Combine the preceding information to get a monthly utility cost function for Jersey.
High Low Method:
The High Low method is a methodology used to separate the fixed and variable components of a mixed cost resulting in an equation to predict costs at different levels of usage or volume. It is very useful for projecting costs for overhead items such as electricity, telephone, water, and others. These types of costs have a variable component that changes with the level of usage but also have a part that remains fixed.
Answer and Explanation: 1
b) Computation of cost function of each cost
|Highest Cost (a)||$659||$99.34|
|Corresponding Usage (b)||2,198||1...|
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fromChapter 22 / Lesson 29
Understand the high-low method in accounting. Learn the formulas for the high-low method. Learn how to compute variable cost per unit, fixed cost, and cost model.