The Armer Company is accumulating data to be used in preparing its annual profit
ID: 2415573 • Letter: T
Question
The Armer Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows:
Hours of Activity
Maintenance Costs
January
470
$ 4,400
February
300
2,800
March
430
3,300
April
270
2,860
May
500
4,400
June
300
2,910
July
310
3,070
August
530
4,700
September
500
4,270
October
460
3,970
November
330
3,500
December
330
3,280
Sum
4,730
43,460
Average
394
3,622
Using the high-low method to estimate cost behavior, 400 maintenance hours in a month would mean the maintenance costs would be budgeted at: (Round your intermediate calculations and final answer to 2 decimal places.)
Hours of Activity
Maintenance Costs
January
470
$ 4,400
February
300
2,800
March
430
3,300
April
270
2,860
May
500
4,400
June
300
2,910
July
310
3,070
August
530
4,700
September
500
4,270
October
460
3,970
November
330
3,500
December
330
3,280
Sum
4,730
43,460
Average
394
3,622
Explanation / Answer
Using the High low Method
VC = Total COst (At high Activity) - Total Cost(LOw Activity)/Unit Produced(At high activity)-UNit Produced(Low Activity)
Highest Activity is 4700 @ 530 units
Lowest Activity is 2860 @ 270 units
VC = 4700 - 2860/530-270
VC = 1840/260 =$ 7.08
Finding out fixed COst at lowest level of Activity
Total COst = Fixed Cost +VAriable COst
2860 = FC +(7.08x270)
2860 = FC + 1911.6
FC = 2860-1911.6
FC = $948.4
400 MAintenance hours in amonth would mean the maintenance cost would be budgeted at
948.4+(400x7.08) = 948.4+2832 = $3780.4
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.