Chapter 2, Problem 26C

To determine

High-low method: High-low method is a method of calculating the variable cost and the fixed cost of a product or service. The calculation of this method is based on the total production/activity cost and the lowest production/activity cost of the product during any period.

Variable Cost: Variable cost is a cost that changes when the volume of production changes, in the same direction and in the same proportion.

Fixed Cost: Fixed cost is a cost that remains constant irrespective of changes in the production volume.

Scattergraph: A scattergraph is a graph or a chart that represents the relationship between two variables for a given set of data.

Least-squares regression: The least-squares regression is a statistical tool to estimate the production costs. The least-squares regression uses an equation with the regression line to calculate the fixed and the variable costs.

1. Using the high-low method, estimate a cost formula for manufacturing overhead.
2. A scattergraph using two-year period data and describe the cost behavior pattern.
3. The accuracy of high low estimates based on the least squares regression analysis estimated.
4. For 22,500 machine-hours during a month, using the high-low method, estimate the total overhead cost by considering only the data points contained in the relevant range of activity.
5. The accuracy of high low estimates based on least squares regression analysis estimated using only the data points given in the relevant range of activity.