Question

MONTH January February March April May June July August September October ACTIVITY COST 450 16,250 700 18,600 750 19,200 525 16,750 800 20,000 675 18,000 650 17,500 400 16,000 425 16,025 600 17,475 1. Using the High-Low method, what is the estimate of fixed costs? 2. The results of a least squares regression are as follows: Intercept: Slope: Coefficient of correlation Standard error $2,250 1.84 .86 640 What is the predictive model (the cost formula)?

Answer 1

dassmate Date Page Andy Focsa estimating the fixed cost, fiest we have to find variable cost per unit. Variable Cost per unit = Highest Activity Cost - Lowest Activity cest. Highest Activity Unit - Lowest Activity unt Therefore, VCPU = 29,000 – 16,000 800-400 4000 4o / unit 400 Variable cost per unit = 40 Now, to find fixed cost Fixed cost Highest Activity Cost - (variable cost per unitx Highest Activity white) Therefore, Fixed cost = 20,000 - (40x800) 12,000 Fixed cost estimated = 12000

Ansa) predictive model is used for predicting the outcomes. Statistically. In least squares method gos ginting variable cost per unit we have a formwa b= n xy - (() nex? - (£x2 where, b = CPU n = number of Month x = Activity y = Cost b is the slope, here it is 1.84 Therefore, VCPU = 1.84 For fixed cost we have formula! b = a = ý - bã here, a = fixed cost VCPU y = mean of cost - mean of Activity a is the Interception Therefore, Fizced cost = $2,250

uns Dafe Page Semi Avg Toend value 18,015 18,160 1.8.16.0 And 3 Month Jan Feb Mar Abril May June July Cost 16,250 18,600 19,200 16750 20,000 18,000 17,500 16,000 16,025 8 sek ot 17475 17,000 VCPU = 18160-17000 8 145 fined cost = 7 - bx here, d=0 because oder ý is in origin i.e. interces -tion. Therefore, FC = 18,015 - (145xo) , 18,01$
VCPU = Variable Cost Per Unit

FC = Fixed Cost