Woodworks Inc produces cabinet doors. Manufacturing overhead costs tend to fluctuate from one month to the next

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Woodworks Inc produces cabinet doors. Manufacturing overhead costs tend to fluctuate from one month to the next

High-Low, Scattergraph, and Regression Analysis; Manufacturing Company. Woodworks, Inc., produces cabinet doors. Manufacturing overhead costs tend to fluctuate from one month to the next, and management would like to accurately estimate these costs for planning and decision-making purposes.
The accounting staff at Woodworks recommends that costs be broken down into fixed and variable components. Because the production process is highly automated, most of the manufacturing overhead costs are related to machinery and equipment. The accounting staff believes the best starting point is to review historical data for costs and machine hours:
Reporting Period (Month)Machine HoursTotal Costs
January1,550278,000
February1,570280,000
March1,115266,000
April1,700290,000
May1,110262,000
June1,225269,000
July1,335275,000
August1,660286,000
September1,000250,000
October1,020253,000
November1,025260,000
December1,600281,000
Required:
1. Use the  high-low method to estimate total fixed costs per month and the variable cost per machine hour. State your results in the cost equation form Y = f + vX by filling in the dollar amounts for f and v.  [Hint:  Watch the video lecture on “mixed cost calculations” before you attempt this problem.]
High Low Y = f + vX   Unlocked work area
 High  Low DifferenceSlope  
Total Costs     
Machine Hours      
  
Y =f +v *X  
      
** Solve for f  
  
Y =f +v *X  
 Y    X   
** Solve for Y     
  
2.  Use the regression slope / intercept formulas to develop the cost equation Y = f + vX. 
[Hint:  Watch the video lecture on “mixed cost calculations” before you attempt this problem.]		  
  
Regression Analysis    
  
Slope  
   
Intercept  
   
  
Y =f +v *X  
 Y    X   
** Solve for Y     
  
3. Use the results of the high-low method and regression analysis to estimate costs for 1,500 machine hours. (You will have two different answers—one for each method.)
Which approach do you think is most accurate and why?		  
  
High – Low  
Y =f +v *X  
 Y      
 Y      
    
** Solve for Y     
  
Regression  
Y =f +v *X  
 Y      
 Y      
    
** Solve for Y     
  
Which approach do you think is most accurate and why?  
  
4. Management likes the regression analysis approach and asks you to estimate costs for 5,000 machine hours using this approach (the company plans to expand by opening another facility and hiring additional employees).
Calculate your estimate, and explain why your estimate might be misleading.		  
  
Y =f +v *X  
 Y      
 Y      
    
** Solve for Y        
Explain why your estimate might be misleading.

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