Estimating Cost Behavior Using Least-Squares Regression and High-Low Method
Tempt Office Services and Supplies (TOSS) provides various products and services in the Tempt Research Park, home to numerous high-tech and bio-tech companies. Making color copies is one of its most popular and profitable services. The controller performed a regression analysis of data from the Color Copy Department with the following results:
The regression output was based on the following data:
1. What is the variable cost per color copy for TOSS?
2. What is the used cost for the Color Copy Department?
3. Based on the regression output obtained by the controller, what cost formula should be used to estimate future total costs for the Color Copy Department?
4. How accurate will the cost formula developed in requirement 3 be at predicting the total cost for the Color Copy Department?
5. Use the high-low method to estimate the variable and fixed costs for the Color Copy Department. What cost formula should be used based on your analysis?
6. If 22,100 copies are made during January, what is the total cost predicted by each method?
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Managerial Accounting
- 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?arrow_forwardUsing the data in P4-2 and Microsoft Excel: 1. Separate the variable and fixed elements. 2. Determine the cost to be charged to the product for the year. 3. Determine the cost to be charged to factory overhead for the year. 4. Determine the plotted data points using Chart Wizard. 5. Determine R2. 6. How do these solutions compare to the solutions in P4-2 and P4-3? 7. What does R2 tell you about this cost model?arrow_forwardThe controller for Dohini Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He collected data on the number of nonstandard orders for the past 12 months and added that information to the data on purchasing cost and total number of purchase orders. Multiple regression was run on the above data; the coefficients shown by the regression program are: Required: 1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate. 2. If Dohini Manufacturing Company estimates that next month will have 430 total purchase orders and 45 nonstandard orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.) 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders and 580 nonstandard orders? What will estimated total purchasing cost be? What is the total fixed purchasing cost? Why doesnt it equal the fixed cost calculated in Requirement 2? (Round your answers to the nearest dollar.)arrow_forward
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- a) Determine the variable cost per unit and the fixed cost using the high-low method. b) What is the equation of the total mixed cost function? c) Prepare the scatter diagram, clearly showing any outliers. d) Using the line of best-fit, determine the company’s fixed cost per month and the variable cost per unit. (Use 0 & 5,000 units.) e) In view of the department’s cost behavior pattern, which of the two methods appear more appropriate? Explain your answerarrow_forwardAnalysis of Regression Results Wang Manufacturing uses regression analysis to predict manufacturing overhead costs based on direct labor hours and/or machine hours and has developed thethree following regression equations:Regression 1 Regression 2 Regression 3SE 33,844 45,383 31,044R-squared 0.55 0.35 0.58t-values:Direct labor hours 2.3 1.9Machine hours 1.1 0.8Required Which regression would you choose and why?arrow_forwardTom uses his computer to calculate the following regression formula:Weekly total costs = $18,791 + ($19.97 * Number of orders per week) Draw the regression line on your graph. Use your graph to evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance of the independent variable. Is the cost function estimated using the high-low method a close approximation of the cost function estimated using the regression method? Explain briefly.arrow_forward
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