Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below:

What is the estimated cost function for the above data?
A) y = 332,000 + 83X
B) y = 312,000 + 104X
C) y = 252,000 + 20.00X
D) y = 92.00X

Question

Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is provided below:

What is the estimated cost function for the above data?
A) y = 332,000 + 83X 
B) y = 312,000 + 104X 
C) y = 252,000 + 20.00X 
D) y = 92.00X

Quizplus · Accepted Answer

Slope = ($332,000 - $312,000) / (4,000 - 3,000) = $20.00
Constant (using highest observation): $332,000 - ($20.00 x 4,000) hours = $252,000
Constant (using lowest observation): $312,000 - ($20.00 x 3,000) hours = $252,000

Taunton Company Uses the High-Low Method to Estimate Its Cost