Question

NHM 310 - BASIC COST CONCEPTS - HW/QZ:_ (CHP6-4) NAME: SCORE: MIXED COSTS Months January February March April May June July August September October November December Total Room Sold 1,560 1,650 1,770 1,820 2,450 2,750 2,600 1,880 1,780 1,900 1,620 1,580 23,360 Repair Expenses $3,200 $3,800 $4,200 $4,450 $4,620 $4,880 $4,620 $4,470 $4,250 $4,500 $3,720 $3,400 $50,110 1. By using the High-Low Two Point Method, determine the Total Fixed and Total Variable Costs (from the repair expense above) for the year. 2. By using Regression Analysis, determine the Total Fixed and Total Variable Costs (from the repair expense above) for the year. (You must solve this problem using a spreadsheet program.)

Answer 1

1. High low method

​​​​​​Step 1 - select the highest & the lowest activity levels from the given date.

Step 2 - Find the variable cost per unit by using the formula ;

VC/u = Difference in cost ÷ Difference in number of units or volume

Vc/u = ( 4880 - 3200) / (2750 - 1560)

=1.412

Step 3 - Find Fixed cost from Total cost

Total cost = total fixed cost +total variable cost

For example, We can take total cost of lower level. Therefore total cost = 3200

3200 = Total Fixed cost + (1.412 × 1560)

Total Fixed cost = 3200 - 2202

= 998.

2. Regression analysis

​​​​​​Firstly we want to find out coefficient of correlation by giving units as 'x' and expense as 'y'.

Equation for r (in image)

12.9. (nExy - Ex. En) ✓ (nex² - (Ex)) + [ney? - (E.)? . the where in no of pairs of values. x-a independent Variable y dependent variable x

Х Y XY Jan 1560 3200 Feb 1650 3800 Mar 1770 4 200 AM 1820 4450 2450 4620 May June 2750 4880 4620 July 2600 Aug 1880 sept 4470 4250 1780 Oct 1900 4500 Nov 1620 3720 Dec 1580 3400 23360) 50, 110 U & Exy Ex² Ey² Ex Ey

While calculating the we will get r = 0.7716

Which is a positive value, so a linear model can be developed in between x and y.

y = a+bx

Camlin Page Date 1 1 ra linear model If si is strong cove on tve) can be developed in b/w x & y. y = afbx ba "Exy-Errey net (Ex)² 9 - ý - bxx * ) b x Ex

After calculations we get a = 2255 and b = 0.996

y= a+bx ; where y = repair expense,

x = no of rooms.

Therefore a = 2255 is the fixed cost

And 0.996 is the variable cost per unit.

It will be bit complicated and confusing,

Please Comment if you need any clarification.

There is an easy method for calculating values for r, a and b using scientific calculator.

You can check it online for that, as I'm not able to explain this without video.

Thank you for the question