Accounting Managerial Solution Chapter 2A

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Appendix 2A Least-Squares Regression Computations Exercise 2A-1 (20 minutes) 1. Month Rental Returns (X) Car Wash Costs (Y) January 2,310 $10,113 February 2,453 $12,691 March 2,641 $10,905 April 2,874 $12,949 May 3,540 $15,334 June 4,861 $21,455 July 5,432 $21,270 August 5,268 $19,930 September 4,628 $21,860 October 3,720 $18,383 November 2,106 $9,830 December 2,495 $11,081 The least-squares regression results are as follows: Intercept (fixed cost) $2,296 Slope (variable cost per unit) $3.74 R2 0.92 Therefore, the cost formula is $2,296 per month plus $3.74 per rental return or: Y = $2,296 + $3.74X Note that the R2 is…show more content…
a. Quarter DLHs (X) Utilities Cost (Y) Year 1: 1st 5,000 $50,000 2nd 3,000 $45,000 3rd 4,000 $60,000 4th 6,000 $75,000 Year 2: 1st 10,000 $100,000 2nd 9,000 $105,000 3rd 8,000 $85,000 4th 11,000 $120,000 The least-squares regression results are as follows: Intercept (fixed cost) $17,000 Slope (variable cost per unit) $9.00 R2 0.93 Therefore, the cost formula using direct labor-hours as the activity base is $17,000 per quarter plus $9.00 per direct labor-hour, or Y = $17,000 + $9.00X. Note that the R2 is 0.93, which means that 93% of the variation in utility costs is explained by the number of direct labor-hours. This is a very high R2 and is an indication of a good fit. Problem 2A-4 (continued) b. The scattergraph plot of utility costs versus direct labor-hours appears below: 3. The company should probably use direct labor-hours as the activity base, since the fit of the regression line to the data is much tighter than it is with tons mined. The R2 for the regression using direct labor-hours as the activity base is twice as large as for the regression using tons mined as the activity base. However, managers should look more closely at the costs and try to determine why utilities costs are more closely tied to direct labor-hours than to the number of tons mined. CASE

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