Maxwell Corporation Is Trying to Predict Its Manufacturing Overhead Costs

question 18

Essay

Maxwell 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:
1. What is the cost equation if the high-low method is used to estimate costs?
2. Using the high-low method, predict total manufacturing overhead costs if Maxwell Corporation uses 12,000 hours.
3 What is the cost equation if regression analysis is used to estimate costs (use the results from the regression analysis provided)?
4. Using regression analysis, predict total manufacturing overhead costs if Maxwell Corporation uses 12,000 hours.
5. Which method is generally the best predictor of costs? Justify your answer.

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Definitions:

Period Costs

Expenses that are not directly tied to the production process and are expensed in the period they are incurred.

Indirect Materials

Supplies used in the production process that are not directly traceable to a finished product.

Factory Overhead

Factory overhead refers to the indirect costs associated with manufacturing, excluding direct materials and direct labor.

Assembly Line

A manufacturing process in which parts are added to a product in a sequential manner to create a finished product more efficiently.