Cost estimation – utilities The Karmichaels’ property has single connections and
ID: 2542507 • Letter: C
Question
Cost estimation – utilities The Karmichaels’ property has single connections and metres for gas and water. The following information is provided regarding these utilities for the past year.
1.Using the high-low method, determine the liner cost function for both the gas and water costs.
2.Express the combined costs in a single linear cost equation.
3.Write an explanation of the procedure and the information it produces, as well as how this information is useful for cost management, to the Karmichaels.
Gas Water Units Cost $ Units Cost $ January 375 $ 343.75 3,500 $ 1,530.00 February 425 $ 356.25 3,750 $ 1,612.50 March 550 $ 387.50 2,250 $ 1,117.50 April 350 $ 337.50 2,000 $ 1,035.00 May 345 $ 336.25 1,800 $ 969.00 June 420 $ 355.00 2,100 $ 1,068.00 July 425 $ 356.25 2,750 $ 1,282.50 August 476 $ 369.00 2,615 $ 1,237.95 September 510 $ 377.50 2,800 $ 1,299.00 October 445 $ 361.25 2,975 $ 1,356.75 November 375 $ 343.75 3,100 $ 1,398.00 December 315 $ 328.75 3,255 $ 1,449.15Explanation / Answer
Gas Water Units Cost $ Units Cost $ January 375 $ 343.75 3500 $ 1,530.00 February 425 $ 356.25 3750 $ 1,612.50 March 550 $ 387.50 2250 $ 1,117.50 April 350 $ 337.50 2000 $ 1,035.00 May 345 $ 336.25 1800 $ 969.00 June 420 $ 355.00 2100 $ 1,068.00 July 425 $ 356.25 2750 $ 1,282.50 August 476 $ 369.00 2615 $ 1,237.95 September 510 $ 377.50 2800 $ 1,299.00 October 445 $ 361.25 2975 $ 1,356.75 November 375 $ 343.75 3100 $ 1,398.00 December 315 $ 328.75 3255 $ 1,449.15 Variable cost = (Total cost of high activity – Total cost low activity) / (Highest activity unit – Lowest activity unit) Highest Activity 550 $ 387.50 3750 $ 1,612.50 Lowest Activity 315 $ 328.75 1800 $ 969.00 Variable Cost per unit (378.50-328.75)/(550-315) (1612.50-969)/(3750-1800) 0.21 0.33 Fixed Cost Total cost = (Variable cost per unit x Units produced) + Total fixed cost 387.50 = (.21*550 units)+ Fixed Cost 1612.50= (.33* 3750 unis +Fixed Cost 387.50 = 116.43 + Fixed Cost 1612.50 = 1237.50 + Fixed Cost Therefore, Fixed Cost = 387.50-116.43 Therefore, Fixed Cost = 1612.50-1237.50 Total Fixed Cost = 271.06 Total Fixed Cost = 375 Total Cost Equation (Variable cost per unit * units) + Fixed Cost (.21*X) + 271.06 (.33*X) + 375