The Business School at Eastern College is accumulating data as a first step in the preparation of next year's budget development.One cost that is being looked at closely is administrative costs as a function of student credit hours.Data on administrative costs and credit hours for the past thirteen months are shown below: The controller's office has analyzed the data and has given you the results from the regression analysis: If the controller uses the high-low method to estimate costs,the cost equation for administrative salaries is:
A)Cost = $96,409.42 + $103.56 × Credit-hours.
B)Cost = $69,474.40 + $114 30 × Credit-hours.
C)Cost = $201.21 × Credit-hours.
D)Cost = $198,808.

Question

The Business School at Eastern College is accumulating data as a first step in the preparation of next year's budget development.One cost that is being looked at closely is administrative costs as a function of student credit hours.Data on administrative costs and credit hours for the past thirteen months are shown below:  The controller's office has analyzed the data and has given you the results from the regression analysis:  If the controller uses the high-low method to estimate costs,the cost equation for administrative salaries is:
A)Cost = $96,409.42 + $103.56 × Credit-hours. 
B)Cost = $69,474.40 + $114 30 × Credit-hours. 
C)Cost = $201.21 × Credit-hours. 
D)Cost = $198,808.

Quizplus · Accepted Answer

The high-low method involves selecting the highest and lowest data points and using them to estimate the cost equation. Using the data provided, the highest month has 5,080 credit hours and $585,900 in administrative costs, while the lowest month has 3,050 credit hours and $381,080 in administrative costs. The difference in costs is $585,900 - $381,080 = $204,820 and the difference in credit hours is 5,080 - 3,050 = 2,030. Dividing the difference in costs by the difference in credit hours gives us a variable cost per credit hour of $204,820 ÷ 2,030 = $100.96. Using this cost per credit hour and the data for any other month, we can estimate the administrative costs for that month. The equation becomes:
Cost = $69,474.40 + ($114.30 × Credit-hours)

The Business School at Eastern College Is Accumulating Data as a First