Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce
production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the companys energy cost behavior. The following costs were incurred during the past 12 months:
Month Pints of Applesauce Produced Energy Cost
January ………………………………………………………. 35,000 ………………………………………. $23,400
February ……………………………………………………… 21,000 ………………………………………. 22,100
March ………………………………………………………… 22,000 ………………………………………. 22,000
April …………………………………………………………… 24,000 ………………………………………. 22,450
May …………………………………………………………… 30,000 ………………………………………. 22,900
June ………………………………………………………….. 32,000 ………………………………………. 23,350
July ……………………………………………………………. 40,000 ………………………………………. 28,000
August ……………………………………………………….. 30,000 ………………………………………. 22,800
September …………………………………………………… 30,000 ………………………………………. 23,000
October ………………………………………………………. 28,000 ………………………………………. 22,700
November ……………………………………………………. 41,000 ………………………………………. 24,100
December …………………………………………………… 39,000 ………………………………………. 24,950
Required:
1. Use the high-low method to estimate the companys energy cost behavior and express it in equation form.
2. Predict the energy cost for a month in which 24,500 pints of applesauce are produced.
3. Draw a scatter diagram and explain the correlation, if exist, between the production of a pint of apple sauce and the energy cost.