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Visual Fit Method

The annual salary of a maintenance mechanic is $25,000 and is considered a fixed cost. Two plausible cost drivers have been suggested: units produced and number of setups.

Data had been collected for the past 12 months and a plot made for the cost driver - units of production. The maintenance cost figures collected include estimates for labor, supplies, and energy. You recently attended an activity-based costing seminar where you learned that some types of activities are performed each time a batch of goods is processed rather than each time a unit is produced. Based on this concept, you have gathered data on the number of steps performed over the past 12 months. The plots of monthly maintenance costs vs. the two potential cost drivers follow.

1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver. Explain how you treated the April data.

2. Find monthly fixed maintenance cost of the variable maintenance cost per driver unit using the high-low method based on each potential cost driver.

3.Which cost driver best meets the criteria for choosing cost functions? Explain.

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Setup costs best meets the ...

Solution Summary

This solution finds monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver.

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