Charlene has been in the business of servicing computers and computer systems at affordable prices for just over five years. Her company's primary clients are local businesses but include some residential customers. Their advertised approach is to analyze the problem, develop a range of IT options, explain their specific recommendation to the customer, and finally estimate the time and costs associated with the service prior to commencing work. Their approach has proven successful, but competition is getting much stiffer, and Charlene is concerned that her approach to determining costs for any particular job is not correctly incorporating all of the company's indirect costs. She asks her accountant to create an allocation system for assigning indirect costs to jobs. Her accountant decides to implement a single-driver allocation system and needs to develop a reliable cost function to estimate total indirect costs (the numerator of the single driver allocation rate). The accountant plans to use service hours as the cost driver (the denominator in the allocation rate). To estimate the parameters of the indirect cost function, the accountant first studied the behavior of last month's indirect costs, when the company spent 281 service hours repairing 28 computer systems. Here are the results of her analysis: Cost Item Fixed Cost Variable Cost Utilities $292 $52 Office rent 3,296 Administration 3,476 192 Supplies Training Total 0 3,197 333 328 $7,397 $3,769 Concerned that last month may not have been a typical month, the accountant decided to use the high-low method to create the cost function. She gathered total cost and activity data from the last six months; the following were for the two months when costs and activity were at the lowest and the highest levels: low month high month Total indirect costs $8,424 $11,073 Service hours Customers 242 560 31 70 Next month, Charlene expects the company to spend 420 hours solving clients' computer system problems.