The Roakes Company is interested in developing a cost equation to estimate the fixed and varlable...
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The Roakes Company is interested in developing a cost equation to estimate the fixed and varlable components of its monthly manufacturing overhead costs. The company wishes to use machine hours as its measure of activity and has gathered the following data: Machine Hours Overhead Costs 2018 January 21,000 $84,000 February 25.000 $100,000 March 22,000 $89,500 April 23,000 $90,000 May 20,500 $81,500 June 19,000 $75,500 July 14,000 $70,500 August 10,000 $66,500 September 12,000 $69,000 October 17,000 $75,000 November 16,000 $71,500 December 18,500 $77,000 2019 January 21,000 $86,000 February 24,000 $93,000 March 23,000 $93,000 April 22,000 $87,000 May 20,000 $78,000 April 22,000 $87,000 May 20.000 $78,000 June 18,000 $76,500 July 12,000 $67,500 August 13,000 $71,000 September 15,000 $73,500 October 17,000 $72,500 November 15,000 $71,000 December 18,000 $75,000 The company leases all of its manufacturing equipment. The lease arrangement calls for a flat monthly fee up to 19,500 machine hours. If the machine hours used exceeds 19,500, the monthly fee becomes strictly varlable with respect to the total number of machine hours consumed during the month. Lease expense Is a major element of overhead costs. Required: (a) Prepare a scatterplot using the above data. Change the x-axis range to 8,000-26,000 and the y-axis range to 60,000-110,000. (b) Using the high-low method, estimate the cost equation for manufacturing overhead costs using all of the data polnts glven. Do you have any concerns about the accuracy of the cost equation estimated using the high-low method? What are your concerns? (c) Based on the lease arrangement described above, divide the data points Into two relevant ranges. State the two relevant ranges. Estimate the cost equation for each relevant range using the high-low method. (d) Assume that the company uses 22,500 machine hours durlng a month. Based on your results In (C). estimate the total manufacturing overhead costs that would be Incurred. The Roakes Company is interested in developing a cost equation to estimate the fixed and varlable components of its monthly manufacturing overhead costs. The company wishes to use machine hours as its measure of activity and has gathered the following data: Machine Hours Overhead Costs 2018 January 21,000 $84,000 February 25.000 $100,000 March 22,000 $89,500 April 23,000 $90,000 May 20,500 $81,500 June 19,000 $75,500 July 14,000 $70,500 August 10,000 $66,500 September 12,000 $69,000 October 17,000 $75,000 November 16,000 $71,500 December 18,500 $77,000 2019 January 21,000 $86,000 February 24,000 $93,000 March 23,000 $93,000 April 22,000 $87,000 May 20,000 $78,000 April 22,000 $87,000 May 20.000 $78,000 June 18,000 $76,500 July 12,000 $67,500 August 13,000 $71,000 September 15,000 $73,500 October 17,000 $72,500 November 15,000 $71,000 December 18,000 $75,000 The company leases all of its manufacturing equipment. The lease arrangement calls for a flat monthly fee up to 19,500 machine hours. If the machine hours used exceeds 19,500, the monthly fee becomes strictly varlable with respect to the total number of machine hours consumed during the month. Lease expense Is a major element of overhead costs. Required: (a) Prepare a scatterplot using the above data. Change the x-axis range to 8,000-26,000 and the y-axis range to 60,000-110,000. (b) Using the high-low method, estimate the cost equation for manufacturing overhead costs using all of the data polnts glven. Do you have any concerns about the accuracy of the cost equation estimated using the high-low method? What are your concerns? (c) Based on the lease arrangement described above, divide the data points Into two relevant ranges. State the two relevant ranges. Estimate the cost equation for each relevant range using the high-low method. (d) Assume that the company uses 22,500 machine hours durlng a month. Based on your results In (C). estimate the total manufacturing overhead costs that would be Incurred.
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a b For HighLow method Variable cost is Variable cost Highest Activity Cost Lowest Activity CostHigh... View the full answer
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