THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 94 THROUGH 96:

The Hunter Company uses the high-low method to estimate the cost function. The
information for 20X5 is provided below:
Machine-hours Labor Costs
Highest observation of cost driver 400 $10,000
Lowest observation of cost driver 240 $ 6,800

1. What is the slope coefficient per machine-hour? a.

$28.33
b. $0.05
c. $20.00
d. $25.00

Answer: c Difficulty: 2 Objective: 4

Terms to Learn: high-low method, slope coefficient
Slope = ($10,000 – $6,800) / (400 – 240) = $20

2. What is the constant for the estimating cost equation? a.

$2,000
b. $6,800
c. $8,000
d. $10,000

Answer: a Difficulty: 2 Objective: 4

Terms to Learn: high-low method, cost estimation
EITHER: Constant = $10,000 – ($20.00 x 400 hours) = $2,000
OR: Constant = $6,800 – ($20.00 x 240 hours) = $2,000