Managerial accounting and managers chpt 2 problem 2-19

Question

Sebolt wire company heat copper ingots. Management needs to know the variable cost of power involved in heating and the fixed cost.     Month    Number of Ingots          Power Cost

                         Jan          110                              5500

                         Feb          90                                4500

                         mar           80                               4400

                        april          100                               5000

                        may          130                               6000

                         june         120                               5600

                        july             70                               4000

                         aug            60                               3200

                         sept           50                                3400

                          oct            40                                2400

Using the the high/low estimate a cost formula for power cost. Express in the Y=a+bX

2.Prepare a scattergraph by plotting ingots processed and power cost on grapgh. Draw a straight line through the two data points that correspond to the highand low levels of activity. Make sure youre line intersects the Y-axis.                        

Answer 1

High -  130, $6,000

Low - 40, @2,400

 

The slope of the cost line is

 

b =($6,000 - $2,400) / (130 - 40)

b = $3,600 / 90 = $40 / ingot

 

Total cost = Fixed Cost = Variable cost

Y = a + bX

$6,000 = a + $40*130

$6,000 - $5,200 = A

a = $800

 

You can also use the low values to get the same answer.