Accounting Managerial Solution Chapter 2A

1170 Words Feb 4th, 2014 5 Pages
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
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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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