Midgett Co

question 28

Multiple Choice

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent)
r = 0.99743
r² = 0.99487
Using the high-low method, unit variable cost is calculated to be (round to the nearest cent) :

• A) $6.83.
• B) $8.67.
• C) $6.78.
• D) $7.88.
• E) $6.48.

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Definitions:

Fixed Manufacturing Overhead

The portion of total manufacturing overhead costs that do not vary with the level of production or output.

Work in Process

Inventory account containing goods that are in the manufacturing process but are not yet complete.

Standard Costs

Predetermined or budgeted costs used for cost control and decision-making, serving as a benchmark for measuring performance.

Materials Price Variance

The difference between the actual cost of materials used in production and the expected (or standard) cost, reflecting changes in material prices.