Question

Required information Problem 6-42 Continuation of Preceding Problem; Computing Least-Squares Regression Estimates; Comparing Multiple Methods (Appendix) (LO 6-1, 6-2, 6-5, 6-6, 6-9) [The following information applies to the questions displayed below.) Martha's Vineyard Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company's controller, Mathew Knight, has recently completed a cost study of the firm's material handling department in which he used work measurement to quantify the departments activity. The control factor unit used in the work-measurement study was hundreds of pounds of equipment unloaded or loaded at the company's loading dock Knight compiled the following data. Month January February March April Hay June July August September October November units of Activity (hundreds of pounds of equipment loaded or unloaded) 2,200 2.000 1,700 1,600 2,600 2.0D 2.400 2,200 3.000 1.500 1.600 Material Handling Department costs $12,100 11,700 11.450 10,600 11,500 13,150 12,400 11,800 12.000 11.250 11,750

Answer 1

Working as follows:

1.

Compute the least square*square regression estimate of the variable and fixed cost component in the company's material handling cost using the spreadsheet as follows:

1 Month Units of Activity 2 3 January 4 February 5 March 6 April 7 May 8 June 9 July 10 August 11 September 12 October 13 November 14 December (hundreds of pounds of equipment loaded or unloaded) 2.200 2000 1700 1400 2600 2800 2400 2200 3000 1500 1600 1800 Material handling Department costs ($) 12100 11700 11450 10600 11500 13150 12400 11800 12600 11250 11750 11750 15 16 Intercept 17 Slope 9692.301325 1.021523179

The formula as follows:

16 Intercept 17 Slope =INTERCEPT(C3:C14,B3:B14) =SLOPE(C3:C14,B3:B14)

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Fixed component: $9,692

Variable-cost component: 1.022  

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2.

The least-square regression equation for the department cost as follows:

Total monthly cost =

$9,692

+

$1.02

Per unit of activity