FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cost Estimation; High-Low Method; MAPE Horton Manufacturing Inc. produces blinds and other window treatments for residential homes and offices. The owner is concerned about the maintenance costs for the production machinery because maintenance costs for the previous fiscal year were higher than he expected. The owner has asked you to assist in estimating future maintenance costs to better predict the firm’s profitability. Together, you have determined that the best cost driver for maintenance costs is machine hours. The data from the previous fiscal year for maintenance costs and machine hours follow:
|
Month |
|
Maintenance Costs |
|
Machine Hours |
|
1 |
|
$2,625 |
|
1,499 |
|
2 |
|
2,670 |
|
1,590 |
|
3 |
|
2,720 |
|
1,605 |
|
4 |
|
2,822 |
|
1,655 |
|
5 |
|
2,855 |
|
1,775 |
|
6 |
|
3,005 |
|
1,880 |
|
7 |
|
2,865 |
|
1,785 |
|
8 |
|
2,905 |
|
1,805 |
|
9 |
|
2,780 |
|
1,695 |
|
10 |
|
2,570 |
|
1,410 |
|
11 |
|
2,590 |
|
1,550 |
|
12 |
|
2,890 |
|
1,425 |
Required (Round all unit costs to two decimal places)
-
Use the high-low method to estimate the fixed and variable portions for maintenance costs.
-
Graph the data points to check for possible outliers and determine whether the points selected in requirement 1 are representative of the data.
-
Calculate the mean absolute percentage error (MAPE) for the cost equation you developed in requirement 1.
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