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.	$	5,010				550
Feb.		3,654				390
Mar.		4,400				520
Apr.		3,324				470
May		5,230				590
June		3,420				440
July		3,628				370
Aug.		5,380				610
Sept.		5,118				570
Oct.		4,884				690
Nov.		3,928				450
Dec.		3,840				430
Sum	$	51,816				6,080
Average	$	4,318.00				506.67

Average cost per hour ($51,816/6,080) = $8.52

r = 0.84731

r² = 0.71793

Using the high-low method, total maintenance cost for 700 hours is calculated to be: (Do not round intermediate calculations. Round your answer to the nearest dollar.)

Multiple Choice

• $5,983.

• $5,467.

• $6,218.

• $5,445.

• $6,346.

Answer 1

Variable cost per unit = (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (4,884 - 3,628)/(690 - 370)

= 1,256/320

= $3.925

Fixed cost = Highest activity cost - Highest activity x Variable cost per hour

= 4,884 - 690 x 3.925

= 4,884 - 2,708.25

= $2,175.75

Total maintenance cost when 700 hours hours is calculated= Fixed cost + Variable cost per hour x Activity hour

= 2,175.75 + 3.925 x 700

= 2,175.75 + 2,747.5

= $4,923

Kindly comment if you need further assistance. Thanks

Exact answer may slightly differ due to rounding off.