Lewis Company Needs to Determine the Variable Utilities Rate Per

question 44

Essay

Lewis Company needs to determine the variable utilities rate per machine hour in order to estimate cost for August. Relevant information is as follows. $\begin{array}{lcr} & \begin{array}{c}\text { Machine } \\\text { Hours }\end{array} & \text { Utilities } \\\underline{\text { Month }}&\underline{\text { Worked }}& \underline{\text { Cost }} \\\text { April } & 4,500 & \$ 9,560 \\\text { May } & 4,200 & 9,440 \\\text { June } & 6,500 & 10,725 \\\text { July } & 7,000 & 11,400\end{array}$ Lewis anticipates producing 5,000 units in August, each unit requiring 1.5 hours of machine time. The company uses the high-low method to analyze costs.
Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results.

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Definitions:

Firm

A business organization, such as a company or partnership, engaged in commercial, industrial, or professional activities.

Organization

A structured group of individuals working together to achieve common goals.

Poisson Probability Distribution

Describes the probability of a given number of events happening in a fixed interval of time or space when these events occur with a known constant mean rate.

Business Processes

A set of tasks and activities that are sequentially organized to achieve a specific organizational goal or objective.