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Accounting: Cost estimation with high-low method.

Ken Howard, financial analyst at JVR Corporation, is examining the behavior of quarterly maintenance costs for budgeting purposes. Howard collects the following data on machine-hours worked and maintenance costs for the past 12 quarters:

Quarter Machine-Hours Maintenance Costs
1 - 90,000 $185,000
2 - 110,000 $220,000
3 - 100,000 $200,000
4 - 120,000 $240,000
5 - 85,000 $170,000
6 - 105,000 $215,000
7 - 95,000 $195,000
8 - 115,000 $235,000
9 - 95,000 $190,000
10 - 115,000 $225,000
11 - 105,000 $180,000
12 - 125,000 $250,000

1. Estimate the cost function for the quarterly data using the high-low method.
2. Plot and comment on the estimated cost function.
3. Howard anticipates that JVR will operate machines for 90,000 hours in quarter 13. Calculate the predicted maintenance costs in quarter 13 using the cost function estimated in #1.

* Complete in Excel

Solution Summary

The problem deals with estimating costs using the high-low method.

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