4. High Low Cost Estimation: EastStar Energy has incurred the following maintena

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4. High Low Cost Estimation: EastStar Energy has incurred the following maintenance costs on their fleet of to determine service vehicles for the first half of the year. EastStar uses miles logged as their cost driver to de cost behavior for the company Month Janua Februa March Maintenance Cost $24,300 21,600 23,460 18,600 17.640 22,100 Total Miles 14,200 13,240 16,800 8,600 10,100 12,240 June Required a. Use the high-low cost estimation method to determine the expected cost if 11,000 miles are logged in one month. b. kay to use the cost estimation equation you determined in a. above to predict costs at 18,000 miles? How about 9,000 miles? 5. The data from problem 4 above was entered into a regression program providing the following output: Intercept 11,448.58 R Square X coefficient 0.7849 Standard error 0.2239 0.7545 A graph of the above data illustrates the regression line: Maintenance Cost $30,000 $25,000 $20,000 15,000 $10,000 $5,000 $0 0 2,0004,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Required a. Determine the cost estimation equation. b. How accurate is this cost estimation equation? c. Is miles logged an accurate predictor of maintenance costs? d. What would the estimated maintenance costs be at 11,000 miles? e. The result in d. above differs from the answer provided by the Hi-Lo estimation method. Why? Module Homework 11--2

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We choose lowest and highest activity and find out cost under high-low cost estimation method Miles Lowest April 8600 18600 Highest March 16800 23460 Incremental 8200 4860 Variable cost per mile=4860/8200 0.592683 Fixed Cost=18600-.592683*8600      13,502.93 Equation=13502.93+.592683x where x is miles Cost at 18000 miles would be=13502.93+.592683*18000 24,171.22 Cost at 9000 miles would be=13502.93+.592683*9000 18,837.08

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