Question

2. Sing-Sing Co. exports fruit to countries in the Northern Hemisphere. The shipping manager is concemed about the control of shipping costs. She feels that shipping costs are mostly driven by weight of the shipment. To estimate the cost she has taken the following costs from the previous year Month Kilograms shipped 650 469 676 690 682 558 488 491 514 Shipping cost $87,180 83,790 90,675 90,862 7,780 88,470 81,166 87,210 81,630 84,540 86,385 February August 554 The shipping manager wants to use the high-low method of cost estimation and then compare it to the actual cost for the month of February in the current year. But the accountant has done a regression analysis on the previous two years, which produced the following output: R Square Adjusted R 0.661811 0.437994 0.381794 2599.576 Significance F 0.019065 1 52666335 52666335 7.793418 10 6757796 6757797 Upper Lower 95.0% 9,5% 95.0% x Variable 1 25.$449 9.257866 2.791669 0019065 .217091 46.47271 5217091 46 47271 Current-year cost (for comparison): Total shipping cost $82,160 Month Kilograms shipped 438 Does the high-low method or regression analysis produce the best estimate, and what is the difference between that estimate and the actual February costs? a) Regression analysis provides the best estimate with an estimate that is $15 lower than b) The high-low method provides the best estimate with an estimate that is $638 lower c) The high-low method provides the best estimate with an estimate that is $638 higher d) Regression analysis provides the best estimate with an estimate that is $653 lower

Answer 1

The answer is option "a".

Regression analysis provides the best estimate with an estimate that is $15 lower than the actual.

Explanation: Actual for February = $82,160 (for 438 kilograms)

Costs as per regression = 70,827.34 + (25.8449*438)

= 82,145 (approx)

Thus difference = actual - regression estimate

= 82,160-82,145

= $15