Jeff Walker Manufacturing Company Produces Inventory in a Highly Automated

question 162

Essay

Jeff Walker Manufacturing Company produces inventory in a highly automated assembly plant in Newcastle.The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes.For the first six months of operations,the following data were collected:
$$\begin{array} { l c c c } & \text { Machine-hours } & \text { Kilowatt-hours } & \text { Total Overhead Costs } \\\text { January } & 3800 & 4520000 & \$ 138000 \\\text { February } & 3650 & 4340000 & 136800 \\\text { March } & 3900 & 4500000 & 139200 \\\text { April } & 3300 & 4290000 & 136800 \\\text { May } & 3250 & 4200000 & 126000 \\\text { June } & 3100 & 4120000 & 120000\end{array}$$
Required:
a.Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b.Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.
c.For July,the company ran the machines for 3000 hours and used 4 000 000 kilowatt-hours of power.The overhead costs totalled $114 000.Which cost driver was the best predictor for July?
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Definitions:

Mode

The value that appears most frequently in a data set, a measure of central tendency.

Variance

A measure of the dispersion or spread of a set of data points, calculated as the average of the squared differences from the mean.

Central Tendency

A statistical measure that identifies a single value as representative of the middle of a dataset, commonly the mean, median, or mode.

Outliers

Data points that lie an abnormal distance from other values in a random sample from a population, often indicating a measurement or transcription error, or a novel phenomenon.