(High-low method) The Charlestonian builds tabletop replicas of some of the most famous lighthouses in North America. The company is highly automated and, thus, maintenance cost is a significant organizational expense. The com¬ pany’s owner has decided to use machine hours as a basis for predicting main¬ tenance costs and has gathered the following data from the prior 8 months of operations:

a. Using the high-low method, determine the cost formula for maintenance costs.

b. What aspect of the estimated equation is bothersome? Provide an explanation for this situation.

c. Within the relevant range, can the formula be reliably used to predict main¬ tenance costs? Can the a and b values in the cost formula be interpreted as fixed and variable costs? Why or why not?LO1

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NUMBER OF MACHINE HOURS MAINTENANCE COSTS 3,000 $980 4,500 690 8,000 510 7,000 600 6,000 550 9,000 440 3,500 840 5,500 600