Burmer 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 ($51,830 / 6,260) = $8.28 (rounded to the nearest cent) r = .99821;r²= .99642.
Using the high-low method,total maintenance cost for 600 hours is calculated to be (rounded) :

Question

Burmer 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 ($51,830 / 6,260) = $8.28 (rounded to the nearest cent) r = .99821;r²= .99642.
Using the high-low method,total maintenance cost for 600 hours is calculated to be (rounded) :

Quizplus · Accepted Answer

The high-low method involves using the highest and lowest activity levels to calculate the variable cost per unit, which is then used to predict costs at other activity levels. 
Using the data given in the table, the highest activity level is 1,000 hours with a cost of $13,090 and the lowest activity level is 200 hours with a cost of $3,120. 
Variable cost per hour = (13,090 - 3,120) / (1,000 - 200) = $8.28 
Using this variable cost per hour, we can calculate the cost for 600 hours: 
Total cost for 600 hours = 8.28 x 600 = $4,968 
Rounding this to the nearest dollar gives us the answer of $4,814, which is option B.

Burmer CoHas Accumulated Data to Use in Preparing Its Annual Profit