Question

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow: Month January February March April May June July August September October November December Machine Electricity Hours Costs 2,500 $18,400 2,900 21,000 1,900 13,500 3,100 23,000 3,800 28, 250 3,300 22,000 4,100 24,750 3,500 22,750 2,000 15,500 3,700 26,000 4,700 31,000 4,200 27,750 Summary Output Regression Statistics Multiple R T 0.965 R Square 0.932 Adjusted R2 0.925 Standard Error 1,425.18 Observations 12.00 Coefficients Intercept 3,726.88 Machine Hours 5. 77 Standard P- Errort Stat value 1,682.82 2.21 0.05 0 .49 11. 70 .00 Lower 95% Upper 95% (22.69) 7,476.45 4.676 .87 If the controller uses regression analysis to estimate costs, the cost equation for electricity costs is: Multiple Choice o Electricity Costs = $1,682.82 + ($0.49 x Machine hours). O Electricity Costs = $1,425.18 + ($12.00 x Machine hours). Electricity Costs = $3,726.88 +($5.77 x Machine hours). o Electricity Costs = $3,726.88 + ($1,682.82 x Machine hours). Electric

Answer 1

Answer :

1) regression Cost equation =

Electricity cost = $3,726.88+($5.77 *Machine Hours)

2) Variable cost Per MH (High-low Method)

$6.25

Estimate the costs with High- Low Method Month novmeber March Electricity cost 4700 Machine Hours High level of Activity low level of Activity 31000 13500 1900 Difference 17500 2800 Answer : $6.25 Varaible cost Per unit (17500/2800) 6.25 Per MH