Question

The College of Business at Northeast College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:

Month	Administrative Costs				Credit Hours
July		$	129,551		500
August			82,813		245
September			225,730		1,522
October			216,494		1,130
November			258,313		1,439
December			184,699		1,242
January			219,337		1,469
February			245,150		1,503
March			209,562		1,194
April			191,975		1,253
May			250,228		1,490
June			170,618		550
July			128,317		445
Total		$	2,512,787		13,982
Average		$	193,291		1,076

The controller's office has analyzed the data and has given you the results from the regression analysis:

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.9326223
R Square	0.869784356
Adjusted R Square	0.857946570
Standard Error	19,994.71939
Observations	13

ANOVA
	df	SS	MS	F	Significance F
Regression	1	29,374,584,992	29,374,584,992	-73.4752568	3.36855E-06
Residual	11	4,397,676,837	399,788,803.4
Total	12	33,772,261,829

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	79,228.10053	14,416.13842	5.49579216	0.000187421	47,498.39380	110,957.8073	47,498.39380	110,957.8073
X Variable 1	106.0521880	12.37226111	8.571770925	3.36855E-06	78.82102495	133.283351	78.82102495	133.283351

  
Based on the results of the high-low analysis, the estimate of administrative costs in a month with 1,100 credit hours would be: (rounded to the nearest whole dollar)

• $197,660.

• $178,500.

• $196,457.

• $195,316.

Answer 1

Variable cost = (Cost at highest activity - Cost at lowest activity) /(Highest activity-Lowest activity)

= (225,730-82,813)/(1522-245) = 111.92

Fixed cost = 225,730 - (1522*111.92) = 55,388

Cost for 1100 hours = (1100*111.92) + 55388

= 178,500