Answered: Cost Estimation; High-Low Method; MAPE…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Cost Estimation; High-Low Method; MAPE Ethan Manufacturing Inc. produces floor mats
for automobiles. The owner, Joseph Ethan, has asked you to assist in estimating maintenance
costs. Together, you and Joseph determine that the single best cost driver for maintenance
costs is machine hours. These data are from the previous fiscal year for maintenance costs and
machine hours:
Month Maintenance Costs Machine Hours
1 $2,600 1,690
2 2,760 1,770
3 2,910 1,850
4 3,020 1,870
5 3,100 1,900
6 3,070 1,880
7 3,010 1,860
8 2,850 1,840
9 2,620 1,700
10 2,220 1,100
11 2,230 1,300
12 2,450 1,590
Required
1. What is the cost equation for maintenance costs using the high-low method?
2. Calculate the mean absolute percentage error (MAPE) for the cost equation you developed in requirement 1.

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