Paula Corporation Is Trying to Predict Its Manufacturing Overhead Costs

question 32

Essay

Paula Corporation is trying to predict its manufacturing overhead costs for the upcoming year; they are debating the use of the high-low method versus the use of regression analysis. They have gathered information about their manufacturing overhead costs in each of the past six months. A table containing their cost data and the associated machine hours in each month (the cost driver)follows.
The company performed a regression analysis using the above data and had the following results. (Note: the results are excerpts so not all of the regression analysis results are presented.)
Required:
a. What is the cost equation if the high-low method is used to estimate costs?
b. Using the high-low method, predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours.
c. What is the cost equation if regression analysis is used to estimate costs (use the results from the regression analysis provided)?
d. Using the results from the regression analysis provided, predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours.
e. Which method (high-low or regression analysis)is a better predictor of total manufacturing overhead costs? Why?

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Definitions:

Inputs

Inputs refer to the resources, materials, labor, and information that are required to produce goods or services in any process or system.

Resources

Resources refer to materials, money, staff, and other assets that can be used by an organization or individual to achieve specific goals or conduct operations.

Sustained Competitive Advantage

The long-term ability of a company to remain more competitive than its rivals by maintaining unique value propositions.

Training And Reward

The process of providing employees with the necessary skills for their roles and incentivizing them with various forms of compensation or recognition.