Question

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have...

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 Machine Hours Electricity Costs
January 2,600 $ 19,250
February 3,000 $ 22,700
March 2,000 $ 14,350
April 3,200 $ 24,700
May 3,900 $ 29,100
June 3,400 $ 23,700
July 4,200 $ 25,600
August 3,600 $ 23,600
September 2,100 $ 17,200
October 3,800 $ 27,700
November 4,800 $ 32,700
December 4,300 $ 28,600

  

Summary Output
Regression Statistics
Multiple R 0.955
R Square 0.912
Adjusted R2 0.904
Standard Error 1,630.46
Observations 12.00

  

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 4,476.65 1,979.98 2.26 0.05 64.99 8,888.32
Machine Hours 5.76 0.56 10.20 0.00 4.50 7.01

  
If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for electricity costs is: (Round intermediate calculations to 2 decimal places.)

Multiple Choice

  • $1,260.00.

  • $24,640.00.

  • $4,476.65.

  • $1,630.46.

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Answer #1

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

= (32,700-14,350)/(4,800-2,000) = 6.55

Fixed cost = Total cost - Total Variable cost

= 32,700 - (6.55*4800)

= 1260

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