Question

Problem 1

Cheetah Delivery operates a fleet of local delivery vehicles. Management wants to estimate the fixed and variable costs per mile. Industry standards indicate variable costs should be no more than $.29 per mile. Cheetah collected the following data for the delivery service for last month to test against the industry standard:

Truck Number	Costs	Miles
1	$370	1280
2	360	1220
3	340	1100
4	400	1190
5	370	1190
6	420	1330
7	330	1000
8	310	940
9	410	1190
10	$400	1250

Use high low method to estimate fixed and variable portion of overhead costs based on miles driven.

What is cost of operating the delivery vehicle for 1000 miles?

Problem 2

Discount Furniture Mart, a national furniture warehouse, plans to offer a new in-store credit card. They will charge $1.50 per transaction. The following cost estimates assume 100,000 transactions during the first month the card is used:

• Direct Labor $44,000 (labor rate $22/hr * 2000 estimated direct labor hours)
• Overhead costs have not yet been estimated for the new product

Overhead costs have been analyzed for 12 months of data on similar activities using the simple linear regression with the following results as a basis for overhead cost estimates of the new product:

SUMMARY OUTPUT: Dependent Variable = Overhead Costs

Regression Statistics

R-square 0.8308

Standard error 617.321

Observations 12

Intercept 11,215.335

Direct labor hours 4.96

What percentage of the variation in overhead costs is explained by the independent variable?

What is the total overhead cost for an estimated activity level of 2000 direct labor hours per month?

Will the $1.5 transaction charge cover the costs of direct labor and overhead, assuming 100,000 transactions?

Problem 3

Baxter Exclusive Hotel and Spa wants to estimate personnel department costs. The following regression was obtained to determine the costs as a function of the number of employees. Three years of monthly data was used in the regression analysis.

SUMMARY OUTPUT: Dependent Variable = Personnel Costs

Regression Statistics

R-square 0.755

Standard error 609.26

Observations 36

Variable Coefficient Standard Error T-Statistic

Intercept 4214.41 2797.9 3.33

Employees 427.03 149.49 2.87

What are the estimated personnel costs for 420 employees?

How confident are you that a significant cost-driver relation exists?

Problem 4

The following data exists for Lawrence Repair, a large equipment repair company. The behavior pattern of the maintenance overhead costs must be determined to prepare the annual profit plan for next year. The cost accountant has suggested using statistical analysis to derive an equation in the form of y=mx+b for maintenance overhead costs. Monthly data regarding past parts costs, repair hours and overhead costs are provided below.

Month	Overhead Costs	Parts Cost	Repair Hours
1	9896	1068	250
2	9249	1455	250
3	13205	3503	482
4	10560	1371	286
5	9059	1547	202
6	10667	1225	382
7	12888	2989	570
8	10350	1844	346
9	11222	1657	450
10	13274	2103	546
11	10835	1248	342
12	12612	2703	414
13	10876	2203	386
14	12821	3113	406
15	8469	755	214

Prepare a graphical representation of overhead cost estimation using Parts Cost as the independent variable. Using Repair Hours as the independent variable. For both scatterplots, use good formatting to include a Figure Title, Axis labels, trend line and remove blank area on the left half of the chart at a minimum.

Compute and report the simple regression results for each of the independent variables.

Report the following from your two outputs	Parts Cost	Repair Hours
Cost Equation using regression output
Predict overhead costs for $3500 parts cost & 480 repair hours
How much of the change in overhead can be explained?
Indicate the t-statistics, is is good?
Indicate the p-value, is is good?
Construct a 95% confidence interval for the estimated coefficient.
Which activity (parts cost or repair hours) do you believe best explains the variation in overhead costs? Provide your justification from the chart.

Compute and report a multiple regression analysis using both independent variables to explain the variation in costs. Provide a single cost equation using both independent variables.

Based on the single cost equation derived from the regression analysis, predict overhead costs for $3500 parts cost & 480 repair hours.

What is the percent of the total variance that can be explained by the regression equation?

Answer 1