Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:MonthMachine HoursUtilityCostsJanuary3,250$22,080 February3,770 25,200 March2,470 16,200 April4,030 27,600 May4,940 33,900 June4,290 26,400 July5,330 29,700 August4,550 27,300 September2,600 18,600 October4,810 31,200 November6,110 37,200 December5,460 33,300 Required:(a.) What is the equation for utility costs using the high-low method?(b.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.
What will be an ideal response?
(a.)
Variable cost per unit: ($37,200 - $16,200)/(6,110 - 2,470) = $5.7692; Fixed = $37,200 - (6,110 × 5.7692) = $1,950.19
Total Utility Costs = $1,950.19 + ($5.7692 × units)
(b.)
$1,950.19 + (5.7692 × 3,000) = $19,257.79
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