Question

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:

Month	Maintenance Cost				Machine Hours
Jan.	$	5,070				520
Feb.		3,657				350
Mar.		4,210				610
Apr.		3,331				410
May		5,217				700
June		3,640				330
July		3,729				430
Aug.		5,363				700
Sept.		5,121				650
Oct.		4,866				540
Nov.		3,926				360
Dec.		3,790				520
Sum	$	51,920				6,120
Average	$	4,326.67				510.00

Average cost per hour ($51,920/6,120) = $8.48

r = 0.83717

r² = 0.70085

Using the high-low method, total maintenance cost for 400 hours is calculated to be: (Do not round intermediate calculations. Round your answer to the nearest dollar.)

Multiple Choice

• $4,254.

• $3,738.

• $4,489.

• $3,716.

• $4,617.

Answer 1

Variable cost = ( Highest month cost- lowest month costs ) / ( Highest month hours - Lowest month hours)

= (5363 - 3331) /( 700 - 330)

= 5.49189

Fixed costs = 5363 - (700 * 5.49189) = 1519

Total cost = 1519 + ( 400 * 5.49189) = 3716 (rounded off)

Option $3716