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Question - Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below:
Month
Units produced
Administrative Costs
January
32,500
$24,288
February
37,700
27,720
March
24,700
17,820
April
40,300
30,360
May
49,400
37,290
June
42,900
29,040
July
53,300
32,670
August
45,500
30,030
September
26,000
20,460
October
48,100
34,320
November
61,100
40,920
December
54,600
36,630
Total
516,100
$361,548
Average
43,008
$30,129
Required -
(a) What is the equation for administrative costs using the high-low method?
(b) Prepare an estimate of administrative costs for a month when 30,000 units are produced.
(c) Based on your estimate in the previous question comment on whether the high-low method would give a reliable estimate from this data.
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