Question

Horton Manufacturing Inc. produces blinds and other window treatments for residential homes and offices. The owner is concerned about the maintenance costs for the production machinery because maintenance costs for the previous fiscal year were higher than he expected. The owner has asked you to assist in estimating future maintenance costs to better predict the firm's profitability Together, you have determined that the best cost driver for maintenance costs is machine hours. The data from the previous fiscal year for maintenance costs and machine hours follow: Machine Month Hours Maintenance Costs $2.625 2.670 2,720 2.620 2,855 3.005 2,865 2.905 2.780 2.570 2.590 2.890 1.590 1.605 1.655 1.775 1.880 1,785 1.805 1,695 1.410 1.550 1.625 Required: 1. Use the high-low method to estimate the fixed and variable portions for maintenance costs. (In your calculations, round "slope (unit variable cost)" to 4 decimal places. Enter the "slope (unit variable cost)" rounded to 4 decimal places and and all other calculations, to nearest whole dollar.) - x Maintenance cost =P

Answer 1

Machine Hours	Maint. Cost
1499	$2,625
1590	$2,670
1605	$2,720
1655	$2,820
1775	$2,855
1880	$3,005
1785	$2,865
1805	$2,905
1695	$2,780
1410	$2,570
1550	$2,590
1425	$2,890
		Machine Hours	Maint. Cost
	High level of activity	1,880	3,005
	Low level of activity	1,410	2,570
	Change	470	$435
	Variable cost	$0.9255	per machine hour		(435/470)
	Fixed Cost =	3,005 - 1,880*0.9255
		3,005 - 1740
		1265
	Maintenance cost	$1,265 + 0.9255 * Machine hours
Sl. No.	Machine Hours	Maintenance cost(Actual)	Hilo Estimate		MAPE
1	1,499	2,625	$2,652	$1,265+0.9255*1499	1.04%	abs(2625-2652.3245)/2625
2	1,590	2,670	$2,737	$1,265+0.9255*1590	2.49%	abs(2670-2736.545)/2670
3	1,605	2,720	$2,750	$1,265+0.9255*1605	1.12%	abs(2720-2750.4275)/2720
4	1,655	2,820	$2,797	$1,265+0.9255*1655	0.83%	abs(2820-2796.7025)/2820
5	1,775	2,855	$2,908	$1,265+0.9255*1775	1.85%	abs(2855-2907.7625)/2855
6	1,880	3,005	$3,005	$1,265+0.9255*1880	0.00%	abs(3005-3004.94)/3005
7	1,785	2,865	$2,917	$1,265+0.9255*1785	1.82%	abs(2865-2917.0175)/2865
8	1,805	2,905	$2,936	$1,265+0.9255*1805	1.05%	abs(2905-2935.5275)/2905
9	1,695	2,780	$2,834	$1,265+0.9255*1695	1.93%	abs(2780-2833.7225)/2780
10	1,410	2,570	$2,570	$1,265+0.9255*1410	0.00%	abs(2570-2569.955)/2570
11	1,550	2,590	$2,700	$1,265+0.9255*1550	4.23%	abs(2590-2699.525)/2590
12	1,425	2,890	$2,584	$1,265+0.9255*1425	10.59%	abs(2890-2583.8375)/2890
				Average =	2.2%
	Hence, MAPE = 2.2%

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