ch10 a - CH 10 10-16 (10 min.) Estimating a cost function....

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CH 10 10-16 (10 min.) Estimating a cost function. 1. Slope coefficient = = $3,900 - $3,000 7,000 - 4,000 $5,400 $4,000 10,000 6,000 - - = $1,400 4,000 = $0.35 0 per machine-hour Constant = Total cost – (Slope coefficient × Quantity of cost driver) = $5 ,4 9 00 – ($0.35 0 × 10 7 ,000) = $1,9 8 00 = $3 4 ,000 – ($0.35 0 × 6 4 ,000) = $1,9 8 00 The cost function based on the two observations is Maintenance costs = $1,9 8 00 + $0.35 0 × Machine-hours 2. The cost function in requirement 1 is an estimate of how costs behave within the relevant range, not at cost levels outside the relevant range. If there are no months with zero machine-hours represented in the maintenance account, data in that account cannot be used to estimate the fixed costs at the zero machine-hours level. Rather, the constant
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online