QUESTION 16 Electrical costs for Sizzler Inc are listed belo

QUESTION 16 Electrical costs for Sizzler, Inc. are listed below Machine Hours Electrical Costs July 2,000 3,000 $1,560 $2,230 S1,750 August September October 1,900 November 1,80031320 2,100 $1,450 December S1,600 Management believes that electrical costs depend on the number of machine hours. Using the high-low method to estimate the variable and fixed components of cost, the cost formula would be: Y=$220+ $0.67X Y-$280+ $O.65X v-ssso +$o.sOX Y-$760 + $0.40X

Solution

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(2230-1450)/(3000-1800)

=$0.65x

Hence total fixed cost=$2230-($0.65*3000)

=$280

Hence cost formula=Fixed cost+Variable cost

=$280+$0.65x

Hence the correct option is B.