During the past year, the high and low levels of resource usage occurred in April and October, respectively (for three different resources). The three resources are associated with the machining activity. Machine hours is the activity driver. The total costs of the three resources and the activity output, as measured by machine hours for the two different levels, follow:lop5

Transcribed Image Text:

Machine depreciation: Low High Power usage: Low High Drilling labor: Low Activity Machine Hours Total Cost 10,000 $130,000 25,000 130,000 10,000 $13,000 25,000 32,500 10,000 $ 22,000 25,000 37,000 High Required: 1. Determine the cost behavior of each resource. Use the high-low method to as- sess the fixed and variable components. 2. Using your knowledge of cost behavior, predict the cost of each item for an ac- tivity output level of 15,000 machine-hours. 3. Construct a cost formula that can be used to predict the total cost of the three resources combined. Using this formula, predict the total machining cost if ac- tivity usage (output) is 18,000 machine hours. In general, when can cost formu- las be combined to form a single cost formula?