Question

High-Low Method, Method of Least Squares, Correlation Big Mike's, a large hardware store, has gathered data on its overhead activities and associated costs for the past 10 months. Nizam Sanjay, a member of the controller's department, believes that overhead activities and costs should be classified into groups that have the same driver. He has decided that unloading incoming goods, counting goods, and inspecting goods can be grouped together as a more general receiving activity, since these three activities are all driven by the number of receiving orders. The 10 months of data shown below have been gathered for the receiving activity. Receiving Orders Receiving Cost Month 1 1,000 1,340 2 $12,170 12.040 13.750 9.930 3 1,150 4 900 1,350 5 15.09 1,400 1,600 16,640 8 1,490 1,800 1.700 14.800 17.00 15.000 10 Required: 1. Choose the correct scatter graph that represents the data provided above. 320.000 $10,000 $1,000 $14.000 $14.000 $12.000 $1.000 Cost $10.000 $4.000 $4,000 $4.000 $4.000 SUO 50 10 o 2.000 2.000 500 1.000 1.500 Number of Receiving Orders 500 1,000 1500 Number of Receiving Orders $20.000 $20.000 $18.000 $16.000 $14.000 $12.000 $16.000 $14.000 . . . $4.000 14,000 $4.000 $2.000 SO $4.000 14.000 $4.000 50 o 2,000 2,000 500 100 Number of Receiving Orders 500 Number of Receiving Orders

Answer 1

1. Correct scatter diagram is option ‘C’   
The relationship of the cost and order is positively associated

4. Formula for cost based on leas square method is;
y= a+bx
y = receiving cost
a=intercept
b=slope of x
x=number of order
Summary result of regression analysis as follows

SUMMARY OUTPUT                                
Regression Statistics                          
Multiple R   0.924803                          
R Square   0.855261                          
Adjusted R Square   0.837169                          
Standard Error   929.0513                          
Observations   10                          
                              
ANOVA                              
    df   SS   MS   F   Significance F          
Regression   1   40802112   40802112   47.27192   0.000128          
Residual   8   6905091   863136.3                  
Total   9   47707203                   
                              
    Coefficients   Standard Error   t Stat   P-value   Lower 95%   Upper 95%   Lower 95.0%   Upper 95.0%
Intercept   4140.044   1483.604   2.790531   0.023539   718.8466   7561.241   718.8466   7561.241
X Cost   7.282197   1.059158   6.875458   0.000128   4.839774   9.72462   4.839774   9.72462

So the regression equation for the cost is;
Y= a+bx
= y = 4140.044+7.28x
So the intercept (a) = 4140.044, if rounded it nearest whole value = 4140
R2 for the given relationship is 0. 8371, it means that 83.71 percentage change in cost is the result of the number of order receiving.