Question

Cycle Accessories manufacturers cellphone holders that can be mounted on the handle bars of most motorcycles. The manufacturing process is highly automated and management feels that machine-hours are likely the main driver of overhead costs. Data from the most recent year are shown below. Month January February March April May June July August September October November December Machine- Hours 2,900 2,960 3,200 3,920 4,100 4,700 5,300 5,900 5,600 4,100 3,260 5,300 Overhead Costs $ 58, 200 61,620 68,200 74,520 76,460 76,480 85,420 85,530 82,520 74,960 69,820 82,580 Required: 1. Using least-squares regression, estimate the fixed cost and variable cost elements of monthly overhead costs. Estimate the fixed cost element to the nearest dollar and the variable cost element to the nearest cent.

Answer 1

Morth machinco) reshead (y) -January XY 2900 cost $ 58200 61620 February 8410000 168780000 8761600 182395200 2960 March 3200 68.200 74520 10240000 218240000 15966400 292118400 April 3420 may 4100 76466 1670000 313486000 June 44700 76480 22090000 359456000 July 5300 85420 28090000 4562726600 85530 34810000 504627000 August 5900 82520 31360000 462112000 Sep 4600 3260 Nov bec 5300 Oct #4960 15810000304386000 69820 10627600 227613200 82580 28090000 437674000 51240 896310 231465600 3926563800 y = atba where a = fixed cost b = variable Cost variable Lost (6) = n2xy - (8x) ({y) mex²_(8X) 2 {y_bex Féxed lost B(a) =

CT- K& R X and We have n = number of months 2x = total me sy = total overhead cost {xt = square of 's Exy = "mula blia variable Cost = nexy - (Ex) (sy) (b) next – (Ex) = 12 * 3926563800 - 51240x896310 n = 12 124231465600 - (51240) sxy = 3926563800 z 51240 47118765600 - 45926924400 3y = 896310 { x = 231465600 2777597200 - 2625537600 L 119184200 - =$7.838 1520 49600 Fixed Cost = Sy – bex 896310 - 7.838 X 512.40 12 2896310 – 401619.12 49 4690.88 2$ 41224524 So fixed cost = $41224.24 variable Cost = $7,838 per machine hour.