a.

High-low method

Month Maintenance Costs Machine Hours

High 3,005 1,880
Low 2, 570 1,410
Change 435 470

(3,005−2,570) 435
Variable Cost per MH (b) = (1,880−1,410) = 470 = $0.93 per MH

Fixed Costs (a) = (3,005 – (0.93 x 1,880) = $1,256.60

Fixed Costs (a) = (2,570– (0.93 x 1,410) = $1,258.70
Y = $1,256.60 + ($0.93 x X)

b. Scattergraph method (you may use excel)

3,100
Maintenance Costs

3,000
2,900 y = 0.6542x + 1702.2
2,800
2,700
2,600
2,500
- 500 1,000 1,500 2,000
Machine Hours

Variable Cost per MH (b) = 0.65

Fixed Costs (a) = 1,702.20
Y = $1,702.20 + ($0.65 x X)

c. Method of least squares

12(54,759,310)−(19,674)(33,297)
b= 12(32,513,676)−(19674)2
= 0.65

33,297−0.65(19,674)
a= 12
= 1, 709.08

y = 1, 709.08 + 0.65 (Machine Hours)

2. Assume that the company estimates that they will use 1800 machine hours for the next period, how
much is the estimated maintenance cost? (Use the cost function for letter (c) above)

Y = 1, 709.08 + 0.65 (1,800)

= $2,879.08