Score 0 of 10 pts 1 of 1 0 complete HW Score 0 0 of 10 pts E

Score: 0 of 10 pts 1 of 1 (0 complete) HW Score: 0%, 0 of 10 pts E10-30 (similar to) Question Help Ken Howard, financial analyst at QTY 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 (Click the icon to view the data.) 1. Estimate the cost function for the quarterly data using the high-low method. 2. Plot and comment on the estimated cost function 3. Howard anticipates that QTY will operate machines for 80,000 hours in quarter 13. Calculate the predicted costs in quarter 13 using the cost function estimated in requirement 1 Requirement 1. Estimate the cost function for the quarterly data using the high-low method. (Complete all answer boxes.) Data Table Quarter Machine-Hours Maintenance Costs 185,000 220,000 200,000 240,000 170,000 215,000 195,000 80,000 $ 100,000 90,000 110.000 75,000 85,000 105,000 85,000 105,000 95,000 125,000 190,000 10 180,000 12 260,000

Solution

Answer

[Maintenance cost at highest level of machine hours (-) maintenance cost at lowest level of machine hours ] / [Machine hours at highest level (-) Machine hours at lowest level]

Quarter

Machine Hours

Maintenance Cost

1

80000

185000

2

100000

220000

3

90000

200000

4

110000

240000

5

75000

170000

6

95000

215000

7

85000

195000

8

105000

235000

9

85000

190000

10

105000

225000

11

95000

180000

12

125000

260000

Variable cost per machine hours = [260000 – 170000] / [125000 – 75000]
= 90000 / 50000 = $1.8 per machine hours

Fixed cost [at highest level] = Total cost (-) Variable cost
=260000 – (1.8 x 125000) = 260000 – 225000 = $35000

Total cost = Fixed Cost + (Variable cost per machine hours x Total Machine hours)
Total Maintenance cost = $35000 + ($1.8 x Total Machine hours)

Total Maintenance cost = $35000 + ($1.8 x Total Machine hours)
= 35000 + (1.8 x 80000)
= 35000 + 144000
= $179000 = Total Maintenance cost if QTY will operate machines for 80000 hours in Quarter 13.

Quarter	Machine Hours	Maintenance Cost
1	80000	185000
2	100000	220000
3	90000	200000
4	110000	240000
5	75000	170000
6	95000	215000
7	85000	195000
8	105000	235000
9	85000	190000
10	105000	225000
11	95000	180000
12	125000	260000