Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost
Using activity analysis, Arnoldson Company has identified the appropriate cost driver for maintenance costs in a factory as the number of machine hours. The maintenance costs have been observed as follows within the relevant range of 5,000 to 8,000 machine-hours.
Month Maintenance Cost Machine Hours
January $7,900 5,600
February $8,500 7,100
March $7,400 5,000
April $8,200 6,500
May $9,100 7,300
June $9,800 8,000
July $7,800 6,200
Required:
1. Estimate the cost function using the high-low method.
2. If you were going to use the visual-fit method to estimate the cost function, what steps will you take?