As part of his job as cost analyst, Max Thompson collected the following information concerning the operations of the Machining Department:
Observation Machine-hours Total Operating Costs
January 4,700 $43,000
February 5,060 45,395
March 4,180 42,535
April 4,500 43,600
May 4,250 42,890
Required:
a. Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b. If June's estimated machine-hours are 4,300, calculate the total estimated costs of the Machining Department?
Answer:
a. Slope coefficient = ($45,395 − $42,535) / (5,060 − 4,180) = $3.25 per machine-hour
Constant = $45,395 − ($3.25 × 5,060) = $28,950
Estimating equation = $28,950 + $3.25X
b. June's estimated costs = $28,950 + ($3.25 × 4,300) = $42,925
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