# excel assignment hi lo method

This exercise will be an application of the Hi-Lo method and its use in forecasting future costs:

The ZZ Company wants to forecast their utility costs for next year (2017). There is a relationship between the number of welds and the number of applications of glue and the total cost of utilities for the business. For 20×6 the activity and utility cost for the various months are as follows:

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 Number of Welds Utilities Cost Number of Applications Utilities Cost January 60 2200 January 60 1800 February 70 2600 February 70 2100 March 90 2900 March 90 2700 April 120 3300 April 120 3600 May 100 3000 May 100 3000 June 130 3600 June 130 3900 July 150 4000 July 150 4500 August 140 3600 August 140 4200 September 110 3100 September 110 3300 October 80 2500 October 80 2400

The forecasted activity for 20×7 is as follows:

 Estimated Number of Welds Estimated Number of Applications January 50 January 50 February 85 February 85 March 100 March 100 April 110 April 110 May 95 May 95 June 135 June 135 July 165 July 165 August 125 August 125 September 115 September 115 October 90 October 90

Calculate the total forecasted utility cost for 2017 for the following:

• The total utility cost for welds
• The total utility cost for applications
• The total utility cost

Please use the following Excel template:

Note that the “mixed cost check” columns are where you verify whether the cost is variable or mixed. Divide the monthly cost by the number of units produced that month – if the cost per unit varies from month to month, the cost is mixed. If the cost per unit remains constant, the cost is variable.