Question

The following data pertains to activity and utility cost for two recent periods: Activity level (units) 8,000 5,000 Utility cost $8,000 $6,500 Utility cost is a mixed cost with both fixed and variable components. What is the cost formula for utility cost using the high-low method?

Answer 1

Y = 4,000 + 0.5X

Step-by-step explanation:

Given that,

Activity and Utility cost for two recent periods are as follows:

Activity level (units):

Period 1 = 8,000

Period 2 = 5,000

Utility cost:

Period 1 = 8,000

Period 2 = 6,500

The cost formula for utility cost:

Y = 4,000 + 0.5X

If Y(Utility cost period 1) = 8,000 and X(Activity cost period 1) = 8,000, then

From the above equation,

$8,000 = 4,000 + 0.5 × 8,000

$8,000 = 4,000 + 4,000

$8,000 = $8,000