Managerial Accounting (February 13, 2017) Assmt.

Post date: Feb 13, 2017 2:17:13 PM

1. Mixed Cost Analysis and the Relevant Range

The Ramon Company is a manufacturer that is interested in developing a cost formula to estimate 

the fixed and variable components of its monthly manufacturing overhead costs. The company 

wishes to use machine-hours as its measure of activity and has gathered the data below for this 

year and last year:

The company leases all of its manufacturing equipment. The lease arrangement calls for a flat 

monthly fee up to 19,500 machine-hours. If the machine-hours used exceeds 19,500, then the fee

becomes strictly variable with respect to the total number of machine-hours consumed during the 

month. Lease expense is a major element of overhead cost. 

Required: 

1. Using the high-low method, estimate a manufacturing overhead cost formula. 

2. Prepare a scattergraph using all of the data for the two-year period. Fit a straight line or lines 

to the plotted points using a ruler. Describe the cost behavior pattern revealed by your scattergraph plot. 

3. Assume a least-squares regression analysis using all of the given data points estimated the 

total fixed costs to be $40,102 and the variable costs to be $2.13 per machine-hour. Do you 

have any concerns about the accuracy of the high-low estimates that you have computed or the 

least-squares regression estimates that have been provided? 

4. Assume that the company consumes 22,500 machine-hours during a month. Using the high-low method, estimate the total overhead cost that would be incurred at this level of activity. Be 

sure to consider only the data points contained in the relevant range of activity when performing your computations. 

5. Comment on the accuracy of your high-low estimates assuming a least-squares regression 

analysis using only the data points in the relevant range of activity estimated the total fixed 

costs to be $10,090 and the variable costs to be $3.53 per machine-hour. 

For BSAB 3-1 and 2:

This assignment will be submitted on Monday feb 20, 2016.