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Question - Brisbane Indoor Sports, a sporting complex, has opening hours that fluctuate from month to month. The electricity costs and hours of operation for past six months is listed below:
Month
Total hours of operation
Total electricity cost
January
650
$4,240
February
700
$4,400
March
800
$4,800
April
600
$4,200
May
550
$3,700
June
500
$3,600
Required -
a) Use the high-low method to estimate the cost behavior for the complex's electricity costs, assuming that the variable costs vary in proportion to the hours of operation. Express the total cost behavior in formula form (Y = a + bx). What is the variable electricity cost per hour of operation?
b) During July, the complex will open for 570 hours. Predict the complex's total electricity costs for July using the cost estimation method employed in above requirement a)
c) What is the main drawback of the high-low method of cost estimation?
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