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What is the main drawback of the high-low method

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Reference no: EM132524175

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:

Question 1: Use the high-low method to estimate the cost behaviour for the complex's electricity costs, assuming that the variable costs vary in proportion to the hours of operation. Express the total cost behaviour in formula form (Y = a + bx). What is the variable electricity cost per hour of operation?

Question 2: 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).

Question 3: What is the main drawback of the high-low method of cost estimation?

 

Reference no: EM132524175

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