Jonathan macintosh is a highly successful upstate

E6-25 Estimating Cost Behavior; High-Low Method

 

E6-25 Jonathan Macintosh is a highly successful upstate New York orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the company’s energy cost behavior. The following costs were incurred during the past 12 months:

 

Month

Pints of Applesauce Produced

Energy Cost

January

35,000

$23,400

February

21,000

22,100

March

22,000

22,000

April

24,000

22,450

May

30,000

22,900

June

32,000

23,350

July

40,000

28,000

August

30,000

22,800

September

30,000

23,000

October

28,000

22,700

November

41,000

24,100

December

39,000

24,950

 

Required:

1. Use the high-low method to estimate the company’s energy cost behavior and express it in equation form.

 

2. Predict the energy cost for a month in which 26,000 pints of applesauce are produced.

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