High-Low, Scattergraph, and Regression Analysis; Manufacturing Company. Woodworks, Inc., produces cabinet doors. Manufacturing overhead costs tend to fluctuate from one month to the next, and management would like to accurately estimate these costs for planning and decision- making purposes. The accounting staff at Woodworks recommends that costs be broken down into fixed and variable components. Because the production process is highly automated, most of the manufacturing overhead costs are related to machinery and equipment. The accounting staff believes the best starting point is to review historical data for costs and machine hours: Machine Hours Total Costs Reporting Period (Month) January February March April May June July August September October November December 1,550 1,570 1,115 1,700 1,110 1,225 1,335 1,660 1,000 1,020 1,025 1,600 278,000 280,000 266,000 290,000 262,000 269,000 275,000 286,000 250,000 253,000 260,000 281,000 Required: 1. Use the high-low method to estimate total fixed costs per month and the variable cost per machine hour. State your results in the cost equation form Y=f +vX by filling in the dollar amounts forf and v. (Hint: Watch the video lecture on "mixed cost calculations" before you attempt this problem.) High Low Low slope Y = f+ vX High 290,000 1,700 Total Costs Machine Hours 250,000 1,000 Difference 40,000 700 57.14 f+ V X Y= 290,000 Solve forf 57.14 1,700.00 192,862 ** ** Solve forf Y = f+ y* X Y 192,862.00 57.14 ** Solve for Y 2. Use the regression slope / intercept formulas to develop the cost equation Y = f +vX. (Hint: Watch the video lecture on "mixed cost calculations" before you attempt this problem.] Regression Analysis slope Intercept # Y= f+ V X X Y **Solve for Y 3. Use the results of the high-low method and regression analysis to estimate costs for 1,500 machine hours. (You will have two different answers-one for each method.) Which approach do you think is most accurate and why? High-Low Y = Y f+ * V X Y Solve for y Regression Y= f+ v Y Y *Solve for Y Which approach do you think is most accurate and why? Solve for Y which approach do you think is most accurate and why? 4. Management likes the regression analysis approach and asks you to estimate costs for 5,000 machine hours using this approach (the company plans to expand by opening another facility and hiring additional employees). Calculate your estimate, and explain why your estimate might be misleading. Y = f+ y* X Y Y Solve for Y Explain why your estimate might be misleading. High-Low, Scattergraph, and Regression Analysis; Manufacturing Company. Woodworks, Inc., produces cabinet doors. Manufacturing overhead costs tend to fluctuate from one month to the next, and management would like to accurately estimate these costs for planning and decision- making purposes. The accounting staff at Woodworks recommends that costs be broken down into fixed and variable components. Because the production process is highly automated, most of the manufacturing overhead costs are related to machinery and equipment. The accounting staff believes the best starting point is to review historical data for costs and machine hours: Machine Hours Total Costs Reporting Period (Month) January February March April May June July August September October November December 1,550 1,570 1,115 1,700 1,110 1,225 1,335 1,660 1,000 1,020 1,025 1,600 278,000 280,000 266,000 290,000 262,000 269,000 275,000 286,000 250,000 253,000 260,000 281,000 Required: 1. Use the high-low method to estimate total fixed costs per month and the variable cost per machine hour. State your results in the cost equation form Y=f +vX by filling in the dollar amounts forf and v. (Hint: Watch the video lecture on "mixed cost calculations" before you attempt this problem.) High Low Low slope Y = f+ vX High 290,000 1,700 Total Costs Machine Hours 250,000 1,000 Difference 40,000 700 57.14 f+ V X Y= 290,000 Solve forf 57.14 1,700.00 192,862 ** ** Solve forf Y = f+ y* X Y 192,862.00 57.14 ** Solve for Y 2. Use the regression slope / intercept formulas to develop the cost equation Y = f +vX. (Hint: Watch the video lecture on "mixed cost calculations" before you attempt this problem.] Regression Analysis slope Intercept # Y= f+ V X X Y **Solve for Y 3. Use the results of the high-low method and regression analysis to estimate costs for 1,500 machine hours. (You will have two different answers-one for each method.) Which approach do you think is most accurate and why? High-Low Y = Y f+ * V X Y Solve for y Regression Y= f+ v Y Y *Solve for Y Which approach do you think is most accurate and why? Solve for Y which approach do you think is most accurate and why? 4. Management likes the regression analysis approach and asks you to estimate costs for 5,000 machine hours using this approach (the company plans to expand by opening another facility and hiring additional employees). Calculate your estimate, and explain why your estimate might be misleading. Y = f+ y* X Y Y Solve for Y Explain why your estimate might be misleading