Variable costs and Fixed costs: Variable costs are those that increase or decrease with the general volume of work. Some of the examples of variable costs are sales commissions, labor costs, raw material costs, etc. Fixed costs are those costs that remain fixed irrespective of the volume of work. Some of the examples of fixed costs are office rent, administrative expenses, depreciation , etc. Least square regression method: The least-square regression method uses the regression line to classify the total cost into variable and fixed cost and thus minimizing the sum of squares of the errors and hence we can get the best line of fit with minimum variances. The least-square regression can be expressed as Y = a + bx Where Y is Total cost A is the total fixed cost B is the variable cost X is the activity level To prepare: a scatter plot graph.

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Chapter 2A, Problem 2A.2E

1.

To determine

Introduction:

Variable costs and Fixed costs:

Variable costs are those that increase or decrease with the general volume of work. Some of the examples of variable costs are sales commissions, labor costs, raw material costs, etc. Fixed costs are those costs that remain fixed irrespective of the volume of work. Some of the examples of fixed costs are office rent, administrative expenses, depreciation, etc.

Least square regression method:

The least-square regression method uses the regression line to classify the total cost into variable and fixed cost and thus minimizing the sum of squares of the errors and hence we can get the best line of fit with minimum variances. The least-square regression can be expressed as Y = a + bx

Where Y is Total cost

A is the total fixed cost

B is the variable cost

X is the activity level

To prepare: a scatter plot graph.

2.

To determine

Introduction:

Variable costs are those that increase or decrease with the general volume of work. Some of the examples of variable costs are sales commissions, labor costs, raw material costs, etc. Fixed costs are those costs that remain fixed irrespective of the volume of work. Some of the examples of fixed costs are office rent, administrative expenses, depreciation, etc.

Least square regression method:

The least-square regression method uses the regression line to classify the total cost into variable and fixed cost and thus minimizing the sum of squares of the errors and hence we can get the best line of fit with minimum variances. The least-square regression can be expressed as Y = a + bx

Where Y is Total cost

A is the total fixed cost

B is the variable cost

X is the activity level

To calculate: the variable cost per rental return and the monthly fixed washing cars using least square regression method.

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Required information Exercise 5A-2 (Algo) Least-Squares Regression [LO5-11] Skip to question [The following information applies to the questions displayed below.] Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of its car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled: Month Rental Returns Car Wash Costs January 2,400 $ 11,000 February 2,500 $ 13,100 March 2,700 $ 11,800 April 3,000 $ 14,300 May 3,600 $ 16,200 June 5,000 $ 23,300 July 5,500 $ 22,200 August 5,500 $ 22,200 September 4,700 $ 22,800 October 4,000 $ 21,100…

Required information Exercise 5A-2 (Algo) Least-Squares Regression [LO5-11] [The following information applies to the questions displayed below.] Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of its car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another. customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled: Month January February March April May June July August September October November December Rental Returns 2,400 2,500 2,800 3,100 Fixed cost per month Variable cost per rental return i 3,700 5,100 5,600 5,600 4,800 4,100. 2,200 3,000. Car Wash Costs $ 11,400 $ 13,300 $ 12,200 $ 14,900 $ 16,600 $ 24,100 $…