Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year.
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Question:
Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:
Month | Maintenance Cost | Machine Hours |
Jan. | $5,040 | 620 |
Feb. | 3,648 | 420 |
Mar. | 4,320 | 520 |
Apr. | 3,331 | 390 |
May | 5,221 | 650 |
June | 3,550 | 400 |
July | 3,655 | 430 |
Aug. | 5,365 | 690 |
Sept. | 5,110 | 640 |
Oct. | 4,866 | 610 |
Nov. | 3,944 | 460 |
Dec. | 3,790 | 440 |
Sum | $51,840 | 6,270 |
Average | $4,320.00 | 522.50 |
Average cost per hour ($51,840 ÷ 6,270) = $8.27 (rounded to the nearest cent)
r = .99821
r2 = .99780
Using the high-low method, total monthly fixed cost is calculated to be (round to nearest dollar):
$757.
$687.
$756.
$733.
$717.
Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
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