Ken Howard, financial analyst at KMW Corporation, is examining the behavior of quarterly maintenance costs for budgeting purposes. Howard collects the following data on machine hours worked and maintenance costs for the past 12 quarters: Quarter Machine-Hours 20,000 24,000 22,000 26,000 18,000 ITT Maintenance Costs $ 41,000 48,000 44,000 52,000 38,000 47,000 43,000 51,000 21,000 42,000 25,000 49,000 11 28,000 56,000 12 27,000 57,000 1234567890=2 23,000 21,000 25,000 Required: 1. Estimate the cost function for the quarterly data using the high-low method. 2. Apply Excel to estimated cost function based on the regression method. Plot the results and explain the main contents of the regression table. 3. Howard anticipates that KMW will operate machines for 30,000 hours in quarter 13. Calculate the predicted maintenance costs in quarter 13 using the cost function estimated in requirement 1 and requirement 2. Comment on the accuracy of both methods and which one you will select for future estimation?

Ken Howard, financial analyst at KMW Corporation, is examining the behavior of quarterly maintenance costs for budgeting purposes. Howard collects the following data on machine hours worked and maintenance costs for the past 12 quarters: Quarter Machine-Hours 20,000 24,000 22,000 26,000 18,000 ITT Maintenance Costs $ 41,000 48,000 44,000 52,000 38,000 47,000 43,000 51,000 21,000 42,000 25,000 49,000 11 28,000 56,000 12 27,000 57,000 1234567890=2 23,000 21,000 25,000 Required: 1. Estimate the cost function for the quarterly data using the high-low method. 2. Apply Excel to estimated cost function based on the regression method. Plot the results and explain the main contents of the regression table. 3. Howard anticipates that KMW will operate machines for 30,000 hours in quarter 13. Calculate the predicted maintenance costs in quarter 13 using the cost function estimated in requirement 1 and requirement 2. Comment on the accuracy of both methods and which one you will select for future estimation?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 1CMA: Taylor Corporation is analyzing the cost behavior of three cost items, A, B, and C, to budget for...

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Wayne Mueller, financial analyst at CELL Corporation, is examining the behav- ior of quarterly utility costs for budgeting purposes. Mueller collects the following data on machine-hours worked and utility costs for the past 8 quarters: Utility Costs $215,000 Quarter Machine-Hours 120,000 150,000 200,000 270,000 170,000 250,000 225,000 195,000 2 75,000 110,000 150,000 90,000 140,000 130,000 3 4 5 100,000 1. Estimate the cost function for the quarterly data using the high-low method. 2. Plot and comment on the estimated cost function. 3. Mueller anticipates that CELL will operate machines for 125,000 hours in quarter 9. Calculate the pre- dicted utility costs in quarter 9 using the cost function estimated in requirement 1.
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