Question
Super Computer Co. provided the following summary regression results for Maintenance Costs: Number of Set-ups: Coefficient Standard Error t-Value Intercept $36,939.77 $56,504.88 0.65 Slope coefficient
Super Computer Co. provided the following summary regression results for Maintenance Costs: Number of Set-ups: Coefficient Standard Error t-Value Intercept $36,939.77 $56,504.88 0.65 Slope coefficient $ 361.91 $152.93 2.37 R2 = 0.36; Estimated use = 54 set-ups Number of Machine Hours: Coefficient Standard Error t-Value Intercept $30,654.86 $23,569.51 0.16 Slope coefficient $ 56.76 $7.82 7.25 R2 = 0.84; Estimated use = 1,600 machine hours Currently Maintenance Costs are estimated using the High Low method based on Direct Labor Hours using the following data: Direct Labor hours Maintenance Costs Highest observation of cost driver 2,500 $300,000 Lowest observation of cost driver 1,500 $220,000 a. Using the High-Low method, what is the estimate of the Maintenance Costs when 1,300 Direct Labor hours are used? b. Based on the regression information above indicate which cost driver (Set-ups or Machine Hours) is the better cost driver? Why is this cost driver best? c. Using the regression information above and the cost driver from b. estimate Maintenance Costs for the coming year. d. Which of your estimates (a. or c.) is the more accurate estimate of Maintenance Costs? Why?
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