High-Low Cost Estimation and Simple Regression Analysis The Blacksburg Company is separating materials handling cost into fixed and variable components. The following data have been collected over a five-month period (all amounts are in thousands):

Required:
(1) Determine the fixed and variable materials handling cost by the high-low method using direct labor hours as the measure of volume.
(2) Determine the fixed and variable materials handling cost by the method of least squares using direct labor hours as the measure of volume.
(3) Repeat (2) using cost of materials issued as the measure of volume.
(4) Which of the two measures of volume in (2) and (3) seems preferable? Why?

Transcribed Image Text:

Month Direct Labor Hours Cost of Materials Materials Issued Handling Costs 1 4 $7 $1.60 434N 2 5 5 1.70 3 6 4 1.80 5 78 8 1.90 6 2.00