Use the following to answer questions:
(CMA adapted) The following information has been accumulated to be used in preparing the 2008 annual budget for the Salem Corporation. The cost behavior pattern of the maintenance costs must be determined for this budget. The accounting staff has suggested that linear regression be employed to derive a cost estimation equation in the form of TC = F +VX for the total maintenance costs. Information regarding the maintenance hours and costs for 2007 and the partial results of the regression are as follows:

t-table for Single-Tailed Values of t

-If this company uses the high-low method of estimating the cost equation, the relationship between the hours of activity and the total maintenance costs would be:
A) TC = $3,600 + $7.50 per hour
B) TC = $570 + $7.50 per hour
C) TC = $3,600 + $9.00 per hour
D) TC = $570 + $9.00 per hour

Question

Use the following to answer questions:
(CMA adapted) The following information has been accumulated to be used in preparing the 2008 annual budget for the Salem Corporation. The cost behavior pattern of the maintenance costs must be determined for this budget. The accounting staff has suggested that linear regression be employed to derive a cost estimation equation in the form of TC = F +VX for the total maintenance costs. Information regarding the maintenance hours and costs for 2007 and the partial results of the regression are as follows:
  
t-table for Single-Tailed Values of t
 
-If this company uses the high-low method of estimating the cost equation, the relationship between the hours of activity and the total maintenance costs would be:
A) TC = $3,600 + $7.50 per hour 
B) TC = $570 + $7.50 per hour 
C) TC = $3,600 + $9.00 per hour 
D) TC = $570 + $9.00 per hour

Quizplus · Accepted Answer

The high-low method uses the highest and lowest activity levels to estimate fixed and variable costs. The fixed cost is $570, and the variable cost per hour is $7.50.

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