Refer to the data provided in Exercise 2-26.
Required:
1. Develop annual cost formulas for machine depreciation, power, and maintenance.
2. Using the three annual cost formulas that you developed, predict the cost of each resource in a year with 630,000 machine hours.

Exercise 2-26.

During the past year, the high and low use of three different resources in a factory occurred in May and November. The resources are machine depreciation, power, and maintenance. The number of machine hours is the driver. The total costs of the three resources and the related number of machine hours are as follows:

Required:
Use the high-low method to answer the following questions.
1. What is the variable rate for machine depreciation? The fixed cost?
2. What is the cost formula for machine depreciation?
3. What is the variable rate for power? The fixed cost?
4. What is the cost formula for power?
5. What is the variable rate for maintenance? The fixed cost?
6. What is the cost formula for maintenance?
7. Using the three cost formulas that you developed, predict the cost of each resource in a month with 40,000 machine hours.

Transcribed Image Text:

Resource Machine Hours Total Cost ($) Machine depreciation: High 75,000 165,000 Low 20,000 165,000 Power: High 75,000 4,500 Low 20,000 1,200 Maintenance: High 75,000 53,800 Low 20,000 19,700