Ginsburg and Company provide you with the following date:
Month Supervision Cost Labor Hrs Machine Hrs
Jan $27,500 2,400 5,040
Feb $27,500 2,560 5,300
March $32,540 3,360 6,600
April $30,000 2,880 6,500
May $32,630 3,300 6,750
a. Use the high-low method to estimate Ginburg's monthly fixed supervision cost and the cost per labor hour (i.e. assume Ginsburg uses machine hours as its measure of activity).
b. Use the high-low method to estimate Ginsburg's monthly fixed supervision cost the cost per machine hour (i.e. assume Ginsburg uses machine hours as its measure of activity).
c. Which of the two estimates, the answer to question (a) or question (b), is likely to be more representative of actual cost behavior?
d. Why might a manager believe that neither equation is a good way to estimate supervision costs?