Question

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:

Month	Machine Hours	Electricity Costs
January	3,500	$	18,900
February	3,900	$	22,000
March	2,900	$	14,000
April	4,100	$	24,000
May	4,800	$	28,750
June	4,300	$	23,000
July	5,500	$	25,250
August	4,500	$	23,250
September	3,000	$	16,500
October	4,700	$	27,000
November	6,800	$	32,000
December	6,000	$	28,250

   

Summary Output
Regression Statistics
Multiple R	.919
R Square	.844
Adjusted R2	.829
Standard Error	2,165.73
Observations	12.00

  

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	5,084.31	2,589.60	1.96	0.08	(685.68)	10,854.29
Machine Hours	4.11	0.56	7.36	0.00	2.86	5.35

If the controller uses the high-low method to estimate costs, the variable cost per machine hour is:

$7.36.

$4.11.

$5.40.

$4.62.

Answer 1

Answer

--Correct Answer = Option #4: $ 4.62 is the variable cost per machine hour

	Months	Unit (machine hour)	Cost
High Level	nov	6,800	$                   32,000.00
Low Level	march	2,900	$                   14,000.00
Difference		3,900	$                   18,000.00
A	Difference in Cost		$                   18,000.00
B	Difference in units		3,900
C = A/B	Variable cost per unit		$                           4.62 Answer