Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent)
r = 0.99821
r²= 0.99780
Using the high-low method, total maintenance cost for 600 hours is calculated to be (round to the nearest dollar) :

Question

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:

Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent)
r = 0.99821
r²= 0.99780
Using the high-low method, total maintenance cost for 600 hours is calculated to be (round to the nearest dollar) :

Quizplus · Accepted Answer

Using the high-low method:

Highest point: 
Maintenance hours = 380 
Maintenance costs = $3,600

Lowest point: 
Maintenance hours = 140 
Maintenance costs = $1,200

Variable cost per hour = (high cost - low cost) / (high hours - low hours) 
= ($3,600 - $1,200) / (380 - 140) 
= $2.25

Total cost at 600 hours = fixed cost + (variable cost per hour * 600 hours) 
Fixed cost = highest cost - (variable cost per hour * highest hours) 
= $3,600 - ($2.25 * 380) 
= $720

Total cost at 600 hours = $720 + ($2.25 * 600) 
= $4,755 (rounded to the nearest dollar)

Therefore, the correct answer is D.