Reference no: EM131915474
Problem - Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Overland Park, KS. The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operation, the following data was collected:
Machine-hours Kilowatt-hours Total Overhead Costs
January 4,800 4,920,000 $158,000
February 4,650 4,640,000 156,800
March 4,900 5,100,000 159,200
April 4,300 4,590,000 156,200
May 4,250 4,500,000 156,000
June 4,100 4,400,000 145,000
1. Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
2. Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.
3. For July, the company ran the machines for 4,700 hours and used 4,750,000 kilowatt-hours of power. The overhead costs totaled $156,500. Which cost driver was the best predictor for July?