Buckeye Company has provided the following data for maintenance cost: $$\begin{array} { | l | l | l | }
\hline & \text { Prior Year } & \text { Current Year } \
\hline \text { Machine hours } & 12,500 & 15,000 \
\hline \text { Maintenance cost } & \$ 27,000 & \$ 31,000 \
\hline
\end{array}$$ The best estimate of the cost formula for maintenance is?
A)$27,000 per year plus $1.60 per machine hour.
B)$21,625 per year plus $0.625 per machine hour.
C)$7,000 per year plus $0.625 per machine hour.
D)$7,000 per year plus $1.60 per machine hour.

Question

Buckeye Company has provided the following data for maintenance cost: $$\begin{array} { | l | l | l | } 
\hline & \text { Prior Year } & \text { Current Year } \
\hline \text { Machine hours } & 12,500 & 15,000 \
\hline \text { Maintenance cost } & \$ 27,000 & \$ 31,000 \
\hline
\end{array}$$ The best estimate of the cost formula for maintenance is?
A)$27,000 per year plus $1.60 per machine hour.
B)$21,625 per year plus $0.625 per machine hour.
C)$7,000 per year plus $0.625 per machine hour.
D)$7,000 per year plus $1.60 per machine hour.

Quizplus · Accepted Answer

The variable cost per machine hour is calculated as the change in cost divided by the change in machine hours: ($31,000 - $27,000) / (15,000 - 12,500) = $1.60 per machine hour. The fixed cost is calculated by subtracting the total variable cost from the total cost for one of the years: $27,000 - ($1.60 * 12,500) = $7,000. Thus, the cost formula is $7,000 per year plus $1.60 per machine hour.

Buckeye Company Has Provided the Following Data for Maintenance Cost