Roary Storm and the Hurricanes Company heat gold ingots to very high temperatures by placing the ingots in a large heat coil. The heated ingots are then run through a shaping machine that shapes the soft ingot into wire. Due to the long heat-up time, the coil is never turned off. When an ingot is placed in the coil, the temperature is raised to an even higher level, and then the coil is allowed to drop to the "waiting" temperature between ingots. Management needs to know the variable cost of power involved in heating an ingot and the fixed cost of power during "waiting" periods. The following data on ingots processed and power costs are available: Number of Ingots Power Cost Month January 115 $6,035 February 95 $5,035 March 85 $4,935 April 105 $5,535 May 135 $6,535 June 125 $6,135 July 75 $4,535 August 65 $3,735 September 47 $3,935 October 37 $2,321 Required: Using the high-low method, estimate a cost formula for power cost.

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter3: Cost Behavior
Section: Chapter Questions
Problem 13E
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Roary Storm and the Hurricanes Company heat gold ingots to very
high temperatures by placing the ingots in a large heat coil. The
heated ingots are then run through a shaping machine that shapes
the soft ingot into wire. Due to the long heat-up time, the coil is
never turned off. When an ingot is placed in the coil, the
temperature is raised to an even higher level, and then the coil is
allowed to drop to the "waiting" temperature between ingots.
Management needs to know the variable cost of power involved in
heating an ingot and the fixed cost of power during "waiting"
periods. The following data on ingots processed and power costs
are available:
Number of Ingots Power Cost
Month
January 115
$6,035
February
95
$5,035
March
85
$4,935
April
105
$5,535
May
135
$6,535
June
125
$6,135
July
75
$4,535
August
65
$3,735
September 47
$3,935
October 37
$2,321
Required:
Using the high-low method, estimate a cost formula for power cost.
Transcribed Image Text:Roary Storm and the Hurricanes Company heat gold ingots to very high temperatures by placing the ingots in a large heat coil. The heated ingots are then run through a shaping machine that shapes the soft ingot into wire. Due to the long heat-up time, the coil is never turned off. When an ingot is placed in the coil, the temperature is raised to an even higher level, and then the coil is allowed to drop to the "waiting" temperature between ingots. Management needs to know the variable cost of power involved in heating an ingot and the fixed cost of power during "waiting" periods. The following data on ingots processed and power costs are available: Number of Ingots Power Cost Month January 115 $6,035 February 95 $5,035 March 85 $4,935 April 105 $5,535 May 135 $6,535 June 125 $6,135 July 75 $4,535 August 65 $3,735 September 47 $3,935 October 37 $2,321 Required: Using the high-low method, estimate a cost formula for power cost.
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