Question
The maintenance costs of a college department are listed below. The Controller wishes to useservice hours as a cost driver for planning purposes. MonthServiceHoursMaintenance Cost
The maintenance costs of a college department are listed below. The Controller wishes to useservice hours as a cost driver for planning purposes.
MonthServiceHoursMaintenance Cost
Jan525$4,710
Feb5054,310
Mar3102,990
Apr4954,200
May3153,000
Jun4854,215
Jul3152,950
Aug4053,680
Sep4754,100
Oct3453,250
Nov3503,260
Dec3353,015
Totals4,860$43,680
Required:
1. Use the high/low method to determine the break down of the mixed costs. Express
the cost in the format Y=a + bxExplain each of the terms.
Use this formula to show the maintenance costs for a month in which there were450 service hours
2. A regression analysis was done on the above data, with the following results:
INTERCEPT = 655.92
SLOPE = 7.368
R2=0.983451
Use this information to show maintenance costs for the month with 450 servicehours. Explain the value of the R2.
3. Explain the difference between the two results.
4.Which method would you use for planning purposes? Why? Why would you not use the other method?
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Financial and Managerial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
12th edition
978-1133952428, 1285078578, 1133952429, 978-1285078571
