Chapter 21, Problem S21.3SE

Using the high-low method

Mel owns a machine shop. In reviewing the shop’s utility bills for the past 12 months, he found that the highest bill of $2,600 occurred in August when the machines worked 1,400 machine hours. The lowest utility bill of $2,300 occurred in December when the machines worked 900 machine hours.

Requirements

1. Calculate the variable rate per machine hour and the total fixed utility cost.
2. Show the equation for determining the total utility cost for the machine shop
3. If Mel anticipates using 1,000 machine hours in January, predict the shop’s total utility bill using the equation from Requirement 2.