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.
| Month | Manufacturing overhead costs | Number of machine hours |
| April | $22,000 | 12,250 |
| May | $22,860 | 12,510 |
| June | $21,600 | 11,280 |
| July | $21,800 | 11,410 |
| August | $21,250 | 10,980 |
| September | $21,930 | 11,670 |
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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