Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 34

Cost Estimation, High-Low Method; MAPE Ethan Manufacturing Inc. produces floor mats for automobiles. The owner, Joseph Ethan, has asked you to assist in estimating maintenance costs. Together, you and Joseph determine that the single best cost driver for maintenance costs is machine-hours. These data are from the previous fiscal year for maintenance expense and machine-hours:

Month	Maintenance Expense	Machine-Hours
1	$2,600	1,690
2	2,760	1,770
3	2,910	1,850
4	3,020	1,870
5	3,100	1,900
6	3,070	1,880
7	3,010	1,860
8	2,850	1,840
9	2,620	1,700
10	2,220	1,100
11	2,230	1,300
12	2,450	1,590

Required

1. What is the cost equation for maintenance cost using the high-low method?

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2. Calculate MAPE for the cost equation you developed in part 1.

Step 1 of 6

Cost estimation

Cost estimation results in estimating variable and fixed costs for business. Cost estimation is made in case of expansions or new product line set-up by companies. Cost estimation helps to determine the cost for product.