Question

ABC Company produces hand-held calculators. The company wants to calculate the fixed variable costs associated with the maintenance cost incurred by the factory. Data for the four months were collected: Maintenance Machine Costs Hours June $ 4,180.00 328.0 July $ 3,956.00 313.0 August $ 4,686.00 386.0 September $ 4,240.00 352.0 Coefficients shown by a regression program are: Intercept X Variable 1 800.00 10.50 a) Using the results of regression, compute the fixed cost of maintenance. b) Using the results of regression, compute the variable cost of maintenance. c) Using the results of regression, construct the cost formula for maintenance cost. d) Compute the budgeted cost for maintenance next month assuming the machine hours budgeted ar 750 e) Using the data and high-low method to compute the budgeted cost for maintenance next month assuming the same number of machine hours budgeted as d) above.

Answer 1

From the result of regression, Intercept is fixed cost & X variable 1 is variable cost per unit

So, a) Fixed cost of maintenance = $800

b). Variable cost of maintenance = $10.50

c). Cost formula for maintenance cost = 800 + 10.50*Machine hours.

d). when machine hours are 750, total maintenance cost = 800 + 10.5*750 = $8675

e). In High low method, Variable cost = (Total cost of high activity - total cost of low activity)/(high activity unit - low activity unit)

VC = (4686-3956)/(386-313) = $10

Fixed cost = 4686 - 10*386 = $826

So for machine hour 750, total maintenance cost = 826 + 10*750 = $8326