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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Method of Least Squares

Refer to the information for Luisa Crimini on the previous page.

Required:

  1. 1. Using a computer spreadsheet program such as Excel, run a regression on these data. Based on the regression output, write the cost formula for tanning. (Note: Round the fixed cost to the nearest dollar and the variable rate to the nearest cent.)
  2. 2. Using the formula computed in Requirement 1, what is the predicted cost of tanning services for September for 2,500 appointments?

Use the following information for Exercises 3-44 through 3-46:

Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows:

Chapter 3, Problem 46E, Method of Least Squares Refer to the information for Luisa Crimini on the previous page. Required:

1.

To determine

Construct the cost formula for the tanning.

Explanation

Least Square Method:

Least square method is used to split mixed cost into fixed and variable components by using set of data points. Statistically best fitting line is identified for cost separation in this method.

The cost formula is,

Total Receiving Cost=Fixed Cost+(Variable Rate×Number

2.

To determine

Calculate the total cost of tanning for a month of September, if 2,500 appointments are received.

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