a)

(i) High-Low method:

The variable cost per machine hour can be calculated as follows:

High level of activity: April

Low level of activity: March

Variable cost = (550 – 150) / (1600 – 400) = 0.25

Fixed cost = Total cost – (Variable cost per machine hour × Total machine hours)

= 350 + (0.25 × 800) + 60 = 550

Therefore, the cost estimation function using the high-low method is:

Maintenance cost = 550 + 0.25 × machine hours worked in production department

(ii) Regression analysis:

Using a regression analysis, we get the following cost estimation function:

Maintenance cost = 143.75 + 0.25 × machine hours worked in production department

b)

(i)

Using the regression function, when machine hours worked in production department are expected to
be 900 in May 2017:
Maintenance cost = 143.75 + 0.25 × 900 = Shs. 368.75 thousand

(ii)

We can solve for the maximum machine hours using the cost estimation function and the given
maintenance cost limit:

400 = 143.75 + 0.25x

x = (400 - 143.75) / 0.25

x = 1065

Therefore, the maximum machine hours that would have been worked if the maintenance cost incurred
had been limited to Shs. 400,000 for the month of May 2017 is 1,065.

c)

The formula for the confidence interval is:

Cost estimate ± (tc × standard error of estimate)

Plugging in the values, we get:

Shs. 368.75 ± (2.7764 × 63.25)

Shs. 368.75 ± 175.38

The 95% confidence interval for the point estimate of maintenance cost when machine hours worked in
production department are 900 is Shs. 193.37 to Shs. 544.13.