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    The document describes a cost estimation equation for a storage freezer department. The freezer cost $57,600 to run for 360 hours in February and $82,080 to run for 720 hours in July. The cost estimation equation is calculated as the fixed cost plus the variable cost per hour. Using this equation, the estimated total cost to run the freezer for 500 hours is $67,120.

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    The document describes a cost estimation equation for a storage freezer department. The freezer cost $57,600 to run for 360 hours in February and $82,080 to run for 720 hours in July. The cost estimation equation is calculated as the fixed cost plus the variable cost per hour. Using this equation, the estimated total cost to run the freezer for 500 hours is $67,120.

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    9 views1 page

    Ab 29

    Uploaded by

    Spade X
    The document describes a cost estimation equation for a storage freezer department. The freezer cost $57,600 to run for 360 hours in February and $82,080 to run for 720 hours in July. The cost estimation equation is calculated as the fixed cost plus the variable cost per hour. Using this equation, the estimated total cost to run the freezer for 500 hours is $67,120.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    1.

    Wimmer’s Storage ran its freezer in February, a slow month, for 360 hours for a
    total cost of $57,600. In July, a peak month, the freezer ran for 720 hours for a
    total cost of $82,080.

    Required:
    a. What is the cost estimating equation for the department if hours of freezer
    use are used as the cost driver?

    b. What is the estimated total cost at an operating level of 500 hours?

    Answer:
    a. Slope (variable costs) = ($82,080 – $57,600) / (720 - 360) = $68

    Constant (fixed cost) = $82,080 – (720 x $68) = $33,120

    Estimating equation = $33,120 + $68DLH

    b. Total costs of 500 hours = $33,120 + $68 x 500 = $67,120

    Difficulty: 2 Objective: 4
    Terms to Learn: cost estimation, cost function, cost predictions

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