Brisbane Indoor Sports, a sporting complex, has opening hours that fluctuate from month to month. The electricity costs and hours of operation for past six months is listed below: Month Total hours of operation Total electricity cost $ 4,240 $ 4,400 $ 4,800 $ 4,200 $ 3,700 $ 3,600 650 January February 700 March 800 April May 600 550 June 500 Required: a) Use the high-low method to estimate the cost behaviour for the complex's electricity costs, assuming that the variable costs vary in proportion to the hours of operation. Express the total cost behaviour in formula form (Y = a + bx). What is the variable electricity cost per hour of operation? b) During July, the complex will open for 570 hours. Predict the complex's total electricity costs for July using the cost estimation method employed in above requirement a). c) What is the main drawback of the high-low method of cost estimation?

Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter13: Budgeting And Standard Costs
Section: Chapter Questions
Problem 13.6.2MBA
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Brisbane Indoor Sports, a sporting complex, has opening hours that fluctuate from month to month.
The electricity costs and hours of operation for past six months is listed below:
Month
Total hours of operation
Total electricity cost
$ 4,240
$ 4,400
$ 4,800
$ 4,200
$ 3,700
$ 3,600
650
January
February
700
March
800
April
May
600
550
June
500
Required:
a) Use the high-low method to estimate the cost behaviour for the complex's electricity costs,
assuming that the variable costs vary in proportion to the hours of operation. Express the total
cost behaviour in formula form (Y = a + bx). What is the variable electricity cost per hour of
operation?
b) During July, the complex will open for 570 hours. Predict the complex's total electricity costs for
July using the cost estimation method employed in above requirement a).
c) What is the main drawback of the high-low method of cost estimation?
Transcribed Image Text:Brisbane Indoor Sports, a sporting complex, has opening hours that fluctuate from month to month. The electricity costs and hours of operation for past six months is listed below: Month Total hours of operation Total electricity cost $ 4,240 $ 4,400 $ 4,800 $ 4,200 $ 3,700 $ 3,600 650 January February 700 March 800 April May 600 550 June 500 Required: a) Use the high-low method to estimate the cost behaviour for the complex's electricity costs, assuming that the variable costs vary in proportion to the hours of operation. Express the total cost behaviour in formula form (Y = a + bx). What is the variable electricity cost per hour of operation? b) During July, the complex will open for 570 hours. Predict the complex's total electricity costs for July using the cost estimation method employed in above requirement a). c) What is the main drawback of the high-low method of cost estimation?
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