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Kilpauk Corporation

Kilpauk Corporation, located in London, Ontario, has gathered data on its

overhead activities and associated costs for the past $12$ months. Nancy Cruder, a

member of the controller's department, has convinced management that

manufacturing overhead costs can be better estimated and controlled if the fixed

and variable components of each overhead activity are known. Nancy has

identified three possible variables $($activity bases$)$ that influence costs: $(1)$

maintenance$-$hours, $(2)$ machine$-$hours and $(3)$ kilowatt$-$hours of power

consumption. She does not know which activity base will be a better predictor of

costs. Therefore, she decides to gather data over a one$-$year period $($Exhibit $1)$

Required$-$

Using the high$-$low method, develop three cost formulas for the

manufacturing overhead costs using the three alternative independent

variables $($activity bases$).$

The company expects the following activity during each of the next two

months: $(1)$ maintenance$-$hours, $1,200$ and $1,500$; $(2)$ machine$-$hours, $40,000$

and $50,000$; and $(3)$ kilowatt$-$hours, $2,000$ and $2,500.$ Compute the estimated

costs for each of the two months using all the cost formulas that you

developed in Requirement $(1).$

Comment on the differences in costs that you have estimated in

$\backslash$table$[[$Month$,$Maintenance$-$hours,Machine$-$hours,Kilowatt$-$hours,Overhead Cost$],[1,1,150,30,000,1,640,$$$15,980],[2,900,25,000,1,620,15,000],[3,1,480,45,000,2,380,24,200],[4,1,320,32,000,1,600,17,000$

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