Sebolt Wire Company heats copper ingots to very high temperatures by placing the ingots in a large heat coil. The heated ingots are then run through a shaping machine that shapes the soft ingot into wire. Due to the long heat-up time, the coil is never turned off. When an ingot is placed in the coil, the temperature is raised to an even higher level, and then the coil is allowed to drop to the “waiting” temperature between ingots. Management needs to know the variable cost of power involved in heating an ingot and the fixed cost of power during “waiting” periods. The following data on ingots processed and power costs are available:

Month	Number of Ingots	Power  Cost
January	113	$5,028
February	93	$4,028
March	83	$3,928
April	103	$4,528
May	133	$5,528
June	123	$5,128
July	73	$3,528
August	63	$2,728
September	41	$2,928
October	31	$1,856

      

Required:
1.	Using the high-low method, estimate a cost formula for power cost. (X represent per ingot.) (Omit the "$" sign in your response.)

Y =

$

+

$  X

 
Explanation:

1.

High-low method:

	Number of Ingots	Power Cost
High activity level	133	$	5,528
Low activity level	31		1,856
Change	102	$	3,672

Variable cost per unit   =	Change in cost
	Change in activity

=	$3,672	= $36 per ingot
	102 ingots

Fixed cost:

Total power cost at high activity level	$	5,528
Less variable element:      133 ingots × $36 per ingot		4,788
Fixed cost element	$	740

Therefore, the cost formula is: Y = $740 + $36X.