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The following data pertains to activity and utility cost for two recent periods:
Activity level (units) 8,000 5,000
Utility cost $8,000 $6,500
Question 1: Utility cost is a mixed cost with both fixed and variable components. Using the high-low method, the cost formula for utility cost is:
Y = $1.00 X
Y = $1.25 X
Y = $4,000 + $0.50 X
Y = $1,500 + $1.25 X
Which method provides the best estimates of fixed and variable costs?
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