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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Method of Least Squares, Predicting Cost for Different Time Periods from the One Used to Develop a Cost Formula
Refer to the information for Farnsworth Company on the previous page. However, assume that Tracy has used the method of least squares on the receiving data and has gotten the following results:
Required:
- 1. Using the results from the method of least squares, prepare a cost formula for the receiving activity.
- 2. Using the formula from Requirement 1, what is the predicted cost of receiving for a month in which 1,450 receiving orders are processed? (Note: Round your answer to the nearest dollar.)
- 3. Prepare a cost formula for the receiving activity for a quarter. Based on this formula, what is the predicted cost of receiving for a quarter in which 4,650 receiving orders are anticipated? Prepare a cost formula for the receiving activity for a year. Based on this formula, what is the predicted cost of receiving for a year in which 18,000 receiving orders are anticipated?
1.
Construct the cost formula for the receiving activity.
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,
2.
Calculate the total cost of receiving for a month, if 1,450 receiving orders are processed.
3.
Construct a cost formula for the receiving activity for a quarter and calculate the predicted cost. Also, construct a cost formula for the receiving activity for a year and calculate the predicted cost.
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