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1.
The management of Wheeler Company has decided to develop cost formulas for its major overhead activities.
Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost.
They have debated whether the power cost should be treated as fixed, variable, or both.
Using the following data you are charged to settle this issue and determine the best cost formula for Wheeler.
Quarter
Machine Hrs Power Cost
1
20000
26000
2
25000
38000
3
30000
42500
4
22000
37000
5
21000
34000
6
18000
29000
7
24000
36000
8
28000
40000
a. Find the estimated fixed cost associated with the machine hours.
Estimate = sum machine hrs / amount of quarters.
=
188000 / 8
Estimate fixed cost = 23500
b. Find the estimated variable cost associated with the machine hours.
c. Discuss your confidence in the use of these estimates.
d. Would you recommend using this cost function?
Explain.
Machine HrsPower Cost
Machine Hr
1
Power Cos
0.89336
1
1
2
3
4
5
6
7
8
0
10000
20000
30000
40000
Machine Hrs.
Linear Regression for Machine Hrs.
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This note was uploaded on 12/02/2011 for the course QM 670 taught by Professor Dr.keeney during the Fall '11 term at Jefferson College.
 Fall '11
 Dr.Keeney

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