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ashly138 ashly138
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6 years ago
A cost analyst collected the following information for the Machining Department:

Observation   Machine-hours   Total Operating Costs
July   8,000   $60,000
August   9,200   66,000
September   7,600   61,000
October   8,800   64,000
November   9,000   65,000

Required:
a.   Determine the estimating cost function with machine-hours as the cost driver using the high-low method.
b.   If December's estimated machine-hours total 8,400, what is the estimated cost of the Machining Department?
Textbook 
Cost Accounting: A Managerial Emphasis, Canadian Edition

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
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#1
6 years ago
a.   Slope coefficient = ($66,000 - $61,000)/(9,200 - 7,600)
   = $5,000/1,600
   = $3.125 per machine-hour

   Constant = $66,000 - ($3.125 × 9,200)
   = $66,000 - $28,750
   = $37,250

Estimating equation = $37,250 + $3.125x

b.   December's estimated costs = $37,250 + $3.125(8,400)
   = $63,500
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