Pratt Tailors has gathered information on utility costs for the past year. The controller has decided that utilities are a function of the hours worked during the month. The following information is available and representative of the company's utility costs: If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using the high-low method should be
A) $947.
B) $954.
C) $959.
D) $976.

Question

Pratt Tailors has gathered information on utility costs for the past year. The controller has decided that utilities are a function of the hours worked during the month. The following information is available and representative of the company's utility costs:  If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using the high-low method should be
A) $947. 
B) $954. 
C) $959. 
D) $976.

Quizplus · Accepted Answer

The high-low method involves finding the highest and lowest activity levels and their corresponding costs, and then using those to calculate the variable cost per unit of activity. 
From the table, the highest activity level is 1,800 hours with a total cost of $1,167, and the lowest activity level is 900 hours with a total cost of $706. 
The change in cost ($1,167 - $706) is $461, and the change in activity (1,800 - 900) is 900 hours. 
Therefore, the variable cost per hour is $461 ÷ 900 hours = $0.51 per hour. 
To find the total utility cost for 1,425 hours worked in a month, we multiply the variable cost per hour by the number of hours: 
$0.51/hour × 1,425 hours = $725.25 
Rounded to the nearest dollar, the answer is $959.

Pratt Tailors Has Gathered Information on Utility Costs for the Past