Question
Northern Lights Company manufacture recreated painting products in a highly automated assembly plant in Yukon, North West Territories. Their automated system is in its first
Northern Lights Company manufacture recreated painting products in a highly automated assembly plant in Yukon, North West Territories. Their automated system is in its first year of operation, and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operations the following data were collected:
Observation | Machine-hours | Kilowatt-hours | Total Overhead Costs |
January | 1,950 | 2,260,000 | 116,000 |
February | 1,825 | 2,170,000 | 114,000 |
March | 1,900 | 2,250,000 | 115,000 |
April | 1,650 | 2,145,000 | 114,000 |
May | 1,625 | 2,100,000 | 105,000 |
June | 1,550 | 2,060,000 | 100,000 |
Required:
1) Compute a cost estimating equation for each independent variable (machine-hours and kilowatt-hours) using the high-low method. (14 marks)
2) For July the company ran the machines for 1,600 hours and used 2,075,000 kilowatt hours of power. The overhead costs totaled $95,000. Which driver was the best predictor for July? (4 marks)
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