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	116	$5,488
February	96	$4,488
March	86	$4,388
April	106	$4,988
May	136	$5,988
June	126	$5,588
July	76	$3,988
August	66	$3,188
September	47	$3,388
October	37	$2,226

      

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	136	$	5,988
Low activity level	37		2,226
Change	99	$	3,762

Variable cost per unit   =	Change in cost
	Change in activity

=	$3,762	= $38 per ingot
	99 ingots

Fixed cost:

Total power cost at high activity level	$	5,988
Less variable element:      136 ingots × $38 per ingot		5,168
Fixed cost element	$	820

Therefore, the cost formula is: Y = $820 + $38X.