If the difference in costs between the highest and lowest cost driver observations is $27000 and the cost driver difference is 90 machine hours, the slope coefficient is ____________?
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Answer: C. $300
Explanation
Dividing the difference in costs by the driver difference yields the slope. This high-low method calculation correctly determines the variable cost rate. The resulting three hundred dollars represents the exact slope coefficient. The high-low method estimates fixed and variable costs using extreme observations. The slope coefficient represents the variable cost per unit of activity. Cost drivers measure the activity level that causes cost fluctuations.
Cost analysts use the high-low method for quick cost behavior estimations. Management applies slope coefficients to forecast expenses at varying activity levels. Understanding cost behavior supports accurate budgeting and variance analysis. Option A overstates the slope coefficient derived from the primary data. Option B suggests a higher cost rate than the division permits. Option D represents an incorrect calculation of the cost and driver differences.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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