costacctg13_sm_ch10

1032 30min highlowmethodandregressionanalysis 1

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

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: oducing 2 Units 4 Units $388,000 $746,760 376,000 708,800 $ 12,000 $ 37,960 Total variable costs for manufacturing 2 and 4 units are lower under the cumulat ive average­t ime learning curve relat ive to the incremental unit­t ime learning curve. Direct manufacturing labor­hours required to make addit ional unit s decline more slowly in the incremental unit­time learning curve relat ive to the cumulat ive average­time learning curve when the same 90% factor is used for both curves. The reason is that, in the incremental unit­time learning curve, as the number of unit s double only the last unit produced has a cost of 90% of the init ial cost. In the cumulative average­time learning model, doubling the number o f unit s causes the average cost of all the addit ional units produced (not just the last unit) to be 90% of the init ia l cost. 10­18 10­31 (25 min.) High­low method. 1. Highest observat ion of cost driver Lowest observat ion of cost driver Difference Machine­Hours 125,000 85,000 40,000 Maintenance Costs $250,000 170,000 $ 80,000 Maintenance costs = a + b ´ Machine­hours Slope coefficient (b) = Constant (a) $80,000 = $2 per machine­hour 40,000 = $250,000 – ($2 × 125,000) = $250,000 – $250,000 = $0 o r Constant (a) = $170,000 – ($2 × 85,000) = $170,000 – $170,000 = $0 Maintenance costs = $2 × Machine­hours 2. SOLUTION EXHIBIT 10­31 Plot and High­Low Line of Machine­Hours on Maintenance Costs $260,000 240,000 M aintenance Costs 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 90,000 100,000 110,000 120,000 130,000 Machine­Hours 10­19 Solution Exhibit 10­31 presents the high­low line. Economic plausibility.The cost funct ion shows a posit ive econo mically plausible relat ionship between machine­hours and maintenance costs. There is a clear­cut engineering relat ionship o f higher machine­hours and maintenance costs. Goodness of fit.The high­low line appears to “fit” the data well. The vert ical differences between the actual and predicted...
View Full Document

This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

Ask a homework question - tutors are online