Deck 14: Least Squares Regression Computations

Question 1

(Appendix 2A)CPE for CPAs,Inc. ,provides continuing professional education for certified public accountants.The company is relatively new and management is seeking information regarding the company's cost structure.The following information has been gathered for the first six months of the current year: Required:
a.Using the high-low method,estimate the variable cost per seminar and the total fixed cost per month.
b.Using the least-squares regression method,estimate the variable cost per seminar and the total fixed cost per month.

Answer 1

a.High-Low Method Variable cost = Change in cost ÷ Change in activity
Variable cost = $6,600 ÷ 8 seminars = $825 per seminar
Fixed cost = Total cost - Variable cost
Fixed cost = $21,800 - (16 seminars × $825 per seminar)= $8,600
Y = $8,600 + $825X
b.Least-squares regression method
Using Microsoft Excel functions,the estimates are:
Variable cost per seminar = Slope = $9,000
Total fixed cost per month = Intercept = $800
Y = $9,000 + $800X

Question 2

(Appendix 2A)The R² (i.e. ,R-squared)is a measure of the goodness-of-fit in least-squares regression.

Answer 2

True

Question 3

(Appendix 2A)Escalona Printing Corp. ,a book printer,has provided the following data: Management believes that the press setup cost is a mixed cost that depends on the number of titles printed.(A specific book that is to be printed is called a "title".Typically,thousands of copies will be printed of each title.Specific steps must be taken to setup the presses for printing each title-for example,changing the printing plates.The costs of these steps are the press setup costs. )
Required:
Estimate the variable cost per title printed and the fixed cost per month using the least-squares regression method.

Answer 3

The solution using Microsoft Excel functions is:
Variable cost per title printed = Slope = $79.33
Fixed cost per month = Intercept = $1,826
The solution using the formulas in the text is:
n = 8
sumX = 209
sumY = $31,187
sumXY = $835,931
sumX2 = 5,727
b = [n(sumXY)- (sumX)(sumY)]/[n(sumX^2)- (sumX)^2]
= [8($835,931)- (209)($31,187)]/[8(5,727)- (209)^2]
= $79.33
a = [(sumY)- b(sumX)]/n
= [($31,187)- $79.33(209)]/8
= $1,826
Any difference in the solutions is due to rounding errors when the formulas are used.

Question 4

(Appendix 2A)Cespedes Inc.'s inspection costs are listed below: Management believes that inspection cost is a mixed cost that depends on units produced. Using the least-squares regression method,the estimate of the fixed component of inspection cost per month is closest to:

A)$6,983
B)$10,342
C)$10,527
D)$6,972

Question 5

(Appendix 2A)Donner Company would like to estimate the variable and fixed components of its maintenance costs and has compiled the following data for the last five months of operations. (Appendix 2A)Using the least-squares regression equation,the total maintenance cost for March is:

A)above the regression line.
B)on the regression line.
C)below the regression line.
D)outside the relevant range.

Question 6

(Appendix 2A)_________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a line to the data that minimizes the sum of the squared errors.

A)Account analysis
B)Scattergraph
C)High-low
D)Least-square regression

Question 7

(Appendix 2A)Donner Company would like to estimate the variable and fixed components of its maintenance costs and has compiled the following data for the last five months of operations. (Appendix 2A)Using the least-squares regression method,the estimated variable cost per labor hour for maintenance is closest to:

A)$1.88
B)$1.52
C)$1.09
D)$1.96

Question 8

(Appendix 2A)Sablan Inc.maintains a call center to take orders,answer questions,and handle complaints.The costs of the call center for a number of recent months are listed below: Management believes that the cost of the call center is a mixed cost that depends on the number of calls taken.
Required:
Estimate the variable cost per call and fixed cost per month using the least-squares regression method.

Question 9

(Appendix 2A)When analyzing a mixed cost,you should always plot the data in a scattergraph,but it is particularly important to check the data visually on a scattergraph when the R² from a least squares regression is low.A quick look at the scattergraph can reveal that there is little relation between the cost and the activity or that the relation is something other than a simple straight line.

Question 10

(Appendix 2A)Your boss would like you to estimate the fixed and variable components of a particular cost.Actual data for this cost over four recent periods appear below. Using the least-squares regression method,what is the cost formula for this cost?

A)Y = $0.00 + $7.55X
B)Y = $110.44 + $2.70X
C)Y = $103.38 + $3.00X
D)Y = $113.35 + $0.89X

Question 11

(Appendix 2A)Recent maintenance costs of Gallander Corporation are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the least-squares regression method,the estimate of the variable component of maintenance cost per machine-hour is closest to:

A)$1.85
B)$10.30
C)$1.67
D)$1.90

Question 12

(Appendix 2A)Donner Company would like to estimate the variable and fixed components of its maintenance costs and has compiled the following data for the last five months of operations. Using the high-low method of analysis,the estimated total fixed cost per month for maintenance is closest to:

A)$440
B)$407
C)$470
D)$0

Question 13

(Appendix 2A)Recent maintenance costs of Gallander Corporation are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the least-squares regression method,the estimate of the fixed component of maintenance cost per month is closest to:

A)$6,066
B)$7,244
C)$5,944
D)$7,130

Question 14

(Appendix 2A)The management of Bandle Corporation would like for you to analyze their repair costs,which are listed below: Management believes that repair cost is a mixed cost that depends on the number of machine-hours.Using the least-squares regression method,the estimates of the variable and fixed components of repair cost would be closest to:

A)$6.72 per machine-hour plus $55,230 per month
B)$6.80 per machine-hour plus $54,679 per month
C)$7.28 per machine-hour plus $51,389 per month
D)$14.66 per machine-hour plus $101,993 per month

Question 15

(Appendix 2A)The management of Buff Sports Stadium believes that the number of sporting events each month is an measure of activity for total clean-up cost.Shown below are event figures and total clean up costs for the past four months: Required:
a.Estimate Buff's cost formula for monthly clean-up cost using the high-low method.
b.Estimate Buff's cost formula for monthly clean-up cost using the least-squares regression method.

Question 16

(Appendix 2A)Donner Company would like to estimate the variable and fixed components of its maintenance costs and has compiled the following data for the last five months of operations. (Appendix 2A)Using the least-squares regression method,the estimated total fixed cost per month for maintenance is closest to:

A)$470
B)$416
C)$400
D)$378

Question 17

(Appendix 2A)Cespedes Inc.'s inspection costs are listed below: Management believes that inspection cost is a mixed cost that depends on units produced. Using the least-squares regression method,the estimate of the variable component of inspection cost per unit produced is closest to:

A)$5.40
B)$5.33
C)$5.43
D)$16.07

Question 18

(Appendix 2A)Laborn Inc.'s inspection costs are listed below: Management believes that inspection cost is a mixed cost that depends on the number of units produced.Using the least-squares regression method,the estimates of the variable and fixed components of inspection cost would be closest to:

A)$43.04 per unit plus $10,648 per month
B)$34.63 per unit plus $2,089 per month
C)$34.78 per unit plus $2,044 per month
D)$36.00 per unit plus $1,714 per month

Question 19

(Appendix 2A)Below are cost and activity data for a particular cost over the last four periods.Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity. Required:
Using the least-squares regression method,estimate the cost formula for this cost.

Question 20

(Appendix 2A)Donner Company would like to estimate the variable and fixed components of its maintenance costs and has compiled the following data for the last five months of operations. Using the high-low method of analysis,the estimated variable cost per labor hour for maintenance is closest to:

A)$0.83
B)$1.84
C)$1.30
D)$1.14

Question 21

(Appendix 2A)The management of Sambrano Corporation would like to better understand the behavior of the company's warranty costs.Those costs are listed below for a number of recent months: Management believes that warranty cost is a mixed cost that depends on the number of product returns.
Required:
Estimate the variable cost per product return and the fixed cost per month using the least-squares regression method.