Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
6th Edition
ISBN: 9780134486857
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 3SE
Mark owns a machine shop. In reviewing the shop’s utility bills for the past 12 months, he found that the highest bill of $2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of $2,300 occurred in December when the machines worked 600 machine hours.
Requirements
- 1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.
- 2. Show the equation for determining the total utility cost for the machine shop.
- 3. If Mark anticipates using 800 machine hours in January, predict the shop’s total utility bill using the equation from Requirement 2.
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Ethan Manufacturing Incorporated produces floor mats for automobiles. The owner, Joseph Ethan, has asked you to assist in estimating maintenance costs. Together, you and Joseph determine that the single best cost driver for maintenance costs is machine hours. These data are from the previous fiscal year for maintenance costs and machine hours:
1. What is the cost equation for maintenance costs using the high-low method?
2. Calculate the mean absolute percentage error (MAPE) for the cost equation you developed in requirement 1.
Month
Maintenance Costs
Machine Hours
1
$ 2,660
1,750
2
2,820
1,830
3
2,970
1,910
4
3,080
1,930
5
3,160
1,960
6
3,130
1,940
7
3,070
1,920
8
2,910
1,900
9
2,680
1,760
10
2,280
1,160
11
2,290
1,360
12
2,510
1,650
Chapter 20 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
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