Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Windsor, ...

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Windsor, Ontario. The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operations, the following data were collected:

   Machine-hours   Kilowatt-hours   Total Overhead Costs
January   3,800   4,520,000   $138,000
February   3,650   4,340,000   136,800
March   3,900   4,500,000   139,200
April   3,300   4,290,000   136,800
May   3,250   4,200,000   126,000
June   3,100   4,120,000   120,000

Required:
a.   Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b.   Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.
c.   For July, the company ran the machines for 3,150 hours and used 4,180,000 kilowatt-hours of power. The overhead costs totaled $114,000. Which cost driver was the best predictor for July?