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Ken Howard, financial analyst at KMW Corporation, is examining the behavior of quarterly maintenance costs
for budgeting purposes. Howard collects the following data on machine-hours worked and maintenance costs
for the past 12 quarters:
Quarter
1
2
3
4
5
6
7
8
9
10
11
12
Machine
Hours
100,000
120,000
110,000
130,000
95,000
115,000
105,000
125,000
105,000
125,000
115,000
140,000
Maintenance
Costs
$205,000
$240,000
$220,000
$260,000
$190,000
$235,000
$215,000
$255,000
$210,000
$245,000
$200,000
$280,000
1. Estimate the cost function for the quarterly data using the high-low method.
Total Cost
$280,000
$190,000
$90,000
Total Cost
H
$280,000
L
$190,000
Machine
Hours
140,000 High
95,000 Low
45,000
Total
Variable Costs
$280,000
$190,000
Total
Fixed Costs
$0 No fixed costs
$0 No fixed costs
Quarter
1
2
3
4
5
6
7
8
9
10
Machine
Hours
100,000
120,000
110,000
130,000
95,000
115,000
105,000
125,000
105,000
125,000
Actual
Maintenance
ACosts
$205,000
$240,000
$220,000
$260,000
$190,000
$235,000
$215,000
$255,000
$210,000
$245,000
Estimated
Maintenance
ECosts
$200,000
$240,000
$220,000
$260,000
$190,000
$230,000
$210,000
$250,000
$210,000
$250,000
Error
$5,000
$0
$0
$0
$0
$5,000
$5,000
$5,000
$0
($5,000)
11
12
115,000
140,000
$200,000
$280,000
$230,000
$280,000
($30,000)
$0
See P10-31(Chart)
There appears to be a clear-cut relationship between machine
hours and maintenance costs.
The high-low line appears to "fit" the data well. The vertical
differences between the actual and predicted costs appear
to be quite small.
3. Howard anticipates that KMW will operate machines for
100,000 hours in quarter 13. Calculate the predicted
maintenance costs in quarter 13 using the cost function
estimated in requirement 1.
Estimated maintenance costs = 100,000 X $2 = $200,000
90,000 hours?
aintenance costs
aintenance costs
$250,000
$200,000
$150,000
$100,000
$50,000
$0
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Exercise 10-40
Fashion Bling operates a chain of 10 retail department stores. Each department store makes its own purchasing deci
Fashion Bling, is interested in better understanding the drivers of purchasing department costs. For many years, Fas
costs to products on the basis of the dollar value of merchandise purchased. A $100 item is allocated 10 times as ma
department as a $10 item.
Barry Lee recently attended a seminar titled "Cost Drivers in the Retail Industry." In a presentation at the seminar, a le
system reported that "number of purchase orders" and "number of suppliers" were the two most important cost drive
value of merchandise purchased in each purchase order was not found to be a significant cost driver. Barry Lee inter
Department at Fashion Bling's Miami store. They believed that the competitors conclusions regarding cost drivers fo
Department. Mr. Barry Lee collects the following data for the most recent year for Fashion Bling's 10 retail departmen
Department
Store
Baltimore
Chicago
LA
Miami
NYC
Phoenix
Seattle
St. Louis
Toronto
Vancouver
$ Value of
Merchandise
Purchased
(MP$)
$68,307,000
33,463,000
121,800,000
119,450,000
33,575,000
29,836,000
102,840,000
38,725,000
139,300,000
130,110,000
Number of
Purchase
Orders
(# of PO)
4,345
2,548
1,420
5,935
2,786
1,334
7,581
3,623
1,712
4,736
Number of
Suppliers
(# of S)
125
230
8
188
21
29
101
127
202
196
Lee decides to use simple regression analysis to examine whether one or more of three variables are reasonable cost
Summary results for these regressions are as follows:
Regression 1: PDC = a + (b X MP$)
SUMMARY OUTPUT
Regression 1 (MP$)
$2,500,000
Regression Statistics
Multiple R
0.651131304
R Square
0.423971975
Adjusted R Square
0.351968472
Standard Error
401027.6454
$2,000,000
Observations
10
ANOVA
Purchase Dept. Dollars
df
Regression
$1,500,000
Residual
Total
Intercept
$1,000,000
(# of PO)
SS
9.46961E+11
1.28659E+12
2.23355E+12
MS
9.46961E+11
1.60823E+11
Coefficients
Standard Error
730715.82
265418.8246
156.9660646
64.68655284
t Stat
2.753067048
2.426564065
1
8
9
Purchase Dept. Do
$500,000
$0
$0
$20,000,000
$40,000,000
$60,000,000
Dollar Value of Merchandise
SUMMARY OUTPUT
(Data tab; Data Analysis; Regression)
Regression Statistics: Regression 1
Multiple R
0.282507267
R Square
0.079810356
Adjusted R Square
-0.03521335
Standard Error
510,550.35
Observations
10
2.60662E+11
ANOVA
df
SS
1.80863E+11
2.08529E+12
2.26616E+12
MS
1.80863E+11
2.60662E+11
Coefficients
Standard Error
1,041,421.366
346,708.547
0.003126704
0.003753624
t Stat
3.003737214
0.832982632
Regression
Residual
Total
Intercept
(MP$)
1
8
9
From a t-table for df=8 and one tail equal to .025 (95% confidence interval), the t-value is:
Therefore the intercept confidence intervals are:
And the b-coefficient confidence intervals are:
For a normal curve: "+/-" 1.64 standard errors for 90% confidence interval.
For a normal curve: "+/-" 1.96 standard errors for 95% confidence interval.
For a normal curve: "+/-" 2.58 standard errors for 99% confidence interval.
2. Goodness of fit
3. Significance of "X" Variable
Regression 1: MP$
From a t-table for df=8 and one tail equal to .025 (95% confidence int
pg. 369
D. Normality of residuals
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
0
1,000
2,000
3,000
Number of Purchase Orders
SUMMARY OUTPUT
Regression Statistics: Regression 2
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.656228523
0.430635874
0.359465358
401601.1595
10
1.61283E+11
ANOVA
df
SS
9.75888E+11
1.29027E+12
2.26616E+12
MS
9.75888E+11
1.61283E+11
Coefficients
Standard Error
722537.851
265834.6274
159.4842168
64.83547006
t Stat
2.717997494
2.459829731
Regression
Residual
Total
1
8
9
Intercept
(# of PO)
From a t-table for df=8 and one tail equal to .025 (95% confidence interval), the t-value is:
Therefore the intercept confidence intervals are:
And the b-coefficient confidence intervals are:
For a normal curve: "+/-" 1.64 standard errors for 90% confidence interval.
For a normal curve: "+/-" 1.96 standard errors for 95% confidence interval.
For a normal curve: "+/-" 2.58 standard errors for 99% confidence interval.
Regression 2: # of PO
Criterion
1. Economic Plausibility
2. Goodness of fit
Appears reasonable
C. Independence of residuals
D. Normality of residuals
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
50
100
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.621971696
R Square
0.386848791
Adjusted R Square
0.310204889
Standard Error
416757.7672
Observations
10
1.73687E+11
ANOVA
df
Regression
Residual
Total
Intercept
(# of S)
SS
8.7666E+11
1.3895E+12
2.26616E+12
MS
8.7666E+11
1.73687E+11
Coefficients
Standard Error
828814.2417
246570.4694
3815.694852
1698.407173
t Stat
3.361368633
2.24663138
1
8
9
From a t-table for df=8 and one tail equal to .025 (95% confidence interval), the t-value is:
Therefore the intercept confidence intervals are:
And the b-coefficient confidence intervals are:
For a normal curve: "+/-" 1.64 standard errors for 90% confidence interval.
For a normal curve: "+/-" 1.96 standard errors for 95% confidence interval.
For a normal curve: "+/-" 2.58 standard errors for 99% confidence interval.
Regression 3: # of Suppliers
2. Goodness of fit
4. Specification Analysis
A. Linearity within the
relevant range
Appears reasonable.
C. Independence of residuals
D. Normality of residuals
2. Do the regression results support the competitor's presentation about the purchasing department's cost drivers?
Fashion Bling can either (a) develop a multiple regression equation for estimating purchasing departme
suppliers as cost allocation bases, or (2) divide the purchasing department cost pool into two separate
and another for costs related to suppliers, and estimate a separate simple regression equation for each
3. How might Lee gain additional evidence on drivers of Purchasing Department costs at each store?
a. Use physical relationships or engineering relationships to establish cause-and-effect links.
Lee could observe the purchasing department operations to gain insight into how costs are driven.
Exercise 10-41
Barry Lee decides that the simple regression analysis used in P10-40 could be extended to a multiple regression analy
Regression 4: PDC = a + (b1)(# of PO) + (b2)(# of S)
SUMMARY OUTPUT
Regression Statistics: Regression 4
Multiple R
0.797723096
R Square
Adjusted R Square
Standard Error
Observations
0.636362138
0.532465606
343107.6721
10
7.21048E+11
1.17723E+11
ANOVA
df
SS
1.4421E+12
8.2406E+11
2.26616E+12
MS
7.21048E+11
1.17723E+11
Coefficients
Standard Error
484521.6346
256684.0955
126.6639997
57.7952084
2903.297788
1458.922564
t Stat
1.887618451
2.191600362
1.99002871
Regression
Residual
Total
Intercept
(# of PO)
(# of S)
2
7
9
From a t-table for df=7 and one tail equal to .025 (95% confidence interval), the t-value is:
Therefore the intercept confidence intervals is:
And the b-coefficient confidence intervals are:
Number of purchase orders
Number of Suppliers
For a normal curve: "+/-" 1.64 standard errors for 90% confidence interval.
For a normal curve: "+/-" 1.96 standard errors for 95% confidence interval.
For a normal curve: "+/-" 2.58 standard errors for 99% confidence interval.
2. Goodness of fit
4. Specification Analysis
A. Linearity within the
relevant range
Appears reasonable.
Appears reasonable.
C. Independence of residuals
D. Normality of residuals
1. Compare regression 4 with regression 2 and 3 in Problem 10-40. Which model would you recommend that Lee use
Regression 4 is economically feasible and has the highest r2 value. Lee should use the results from
4.80701E+11
1.37342E+11
ANOVA
df
Regression
Residual
Total
Intercept
(MP$)
(# of PO)
(# of S)
SS
1.4421E+12
8.24054E+11
2.26616E+12
MS
4.80701E+11
1.37342E+11
Coefficients
Standard Error
483559.9493
312554.2588
0.0000194148
0.002913205
126.5778427
63.75031137
2900.7309
1622.198995
t Stat
1.547123214
0.006664422
1.985525089
1.788147391
3
6
9
From a t-table for df=6 and one tail equal to .025 (95% confidence interval), the t-value is:
Therefore the intercept confidence intervals is:
And the b-coefficient confidence intervals are:
Dollars of Merchandise Purchased
Number of purchase orders
Number of Suppliers
For a normal curve: "+/-" 1.64 standard errors for 90% confidence interval.
For a normal curve: "+/-" 1.96 standard errors for 95% confidence interval.
For a normal curve: "+/-" 2.58 standard errors for 99% confidence interval.
2. Compare regression 5 with regression 4. Which model would you recommend that Lee use?
$75,000,000
4,000
95
PDC =
4. What difficulties do not arise in simple regression analysis that may arise in multiple regression analysis?
Multicollinearity is a frequently encountered problem in cost accounting; it does not arise in simple reg
because there is only one independent variable in a simple regression. Multicollinearity exists when tw
more independent variables are highly correlated with each other.
One consequence of multicollinearity is an increase in the standard errors of the coefficients of the indi
variables. This frequently shows up in reduced t-values for the independent variables in the multiple
regression relative to their t-values in the simple regression.
Variables
Regression 4
# of PO
# of S
Regression 5
# of PO
# of S
MP$
t-value
Multiple
Regression
t-value
Simple
Regression
2.191600362
1.99002871
2.459829731
2.24663138
1.985525089
1.788147391
0.006664422
2.459829731
2.24663138
0.832982632
The decline in the t-values in the multiple regressions is consistent with some (but not very high)
collinearity among the independent variables.
Generally, users of regression analysis believe that a coefficient of correlation between independent va
greater than 0.70 indicates multicollinearity.
The coefficients of correlation between the potential independent variables for Fashion Bling are:
Pair-wise
Correlation Values
# of PO / # of S
# of PO / MP$
# of S / MP$
0.285358
0.270157
0.296190
# of PO
# of Suppliers
MP$
# of PO
(MP$)
(MP$)
(# of PO)
(# of S)
(PDC)
1
0.270157066
0.296190300
0.282507267
(# of PO)
1
0.285358146
0.656228523
(# of S)
1
0.621971696
5. Give examples of decisions in which the regression results reported here could be informative.
Cost management decisions: Fashion Bling could restructure relationships with suppliers so that
fewer separate purchase orders are made. Alternatively, it may aggressively reduce the number
of existing suppliers.
Purchasing policy decisions: Fashion Bling could set up an internal charge system for individual
retail departments within each store. Separate charges to each department could be made for each
purchase order and each new supplier added to the existing ones. These internal charges would
signal to each department ways in which their own decisions affect the total costs of Fashion Bling.
Account system design decisions: Fashion Bling may want to discontinue allocating purchasing
department costs on the basis of dollar value of merchandise purchased. Allocation bases better
capturing cause-and-effect relations at Fashion Bling are the number of purchase orders and the
number of suppliers.
nt store makes its own purchasing decisions. Barry Lee, assistant to the president of
department costs. For many years, Fashion Bling has allocated purchasing department
A $100 item is allocated 10 times as many overhead costs associated with the purchasing
y." In a presentation at the seminar, a leading competitor that has implemented an ABC
were the two most important cost drivers of purchasing department costs. The dollar
a significant cost driver. Barry Lee interviewed several members of the Purchasing
s conclusions regarding cost drivers for purchasing costs also applied to their Purchasing
r for Fashion Bling's 10 retail department stores:
Purchasing
Department
Costs
(PDC)
$1,522,000
1,095,000
542,000
2,053,000
1,068,000
517,000
1,544,000
1,761,000
1,605,000
1,263,000
$ Value of
Merchandise
Purchased
(MP$)
$68,307,000
33,463,000
121,800,000
119,450,000
33,575,000
29,836,000
102,840,000
38,725,000
139,300,000
130,110,000
Number of
Suppliers
(# of S)
125
230
8
188
21
29
101
127
202
196
Regression 1 (MP$)
F
5.888213164
Significance F
0.041423692
P-value
0.024940453
0.041423692
Lower 95%
118658.5171
7.798509836
Upper 95%
1342773.123
306.1336195
Lower 95.0%
118658.5171
7.798509836
Upper 95.0%
1342773.123
306.1336195
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
0.693860065
F
0.693860065
Significance F
0.429019986
P-value
0.016974731
0.429019986
Lower 95%
241,910.0229
-0.005529169
260,661,660,427.11
$510,550.35
Std. error of the regression
On average, actual Y and the predicted y differ by this amoun
The smaller the std. error the better the goodness of fit
Upper 95%
1,840,932.7095
0.011782576
3.003737214
0.832982632
2.306004135
1,840,932.7102
0.011782576
1.644853627
1.959963985
2.575829304
0.079810356
nd one tail equal to .025 (95% confidence interval), the t-value is:
gression analysis
1,041,421.366
0.003126704
0.079810356
0.282507267
2.306004135
3.003737225
0.832982631
hip appears questionable within the relevant range. (See Scatter diagram)
4,000
5,000
6,000
7,000
0.430635874
8,000
Slope
Intercept
159.4842168
722537.851
6.050762303
F
6.050762303
Significance F
0.039329201
2.717997494
2.459829731
P-value
0.026330178
0.039329201
Lower 95%
109522.1014
9.973354903
Upper 95%
1335553.6
308.9950788
2.306004135
1,335,553.6
308.9950789
1.644853627
1.959963985
2.575829304
le. Increasing the number of purchase orders increases the purchasing tasks to be undertaken.
0.430635874
gression analysis
e Scatter diagram)
150
200
250
Number of Suppliers
0.386848791
3815.694852
828814.2417
5.047352558
F
5.047352558
Significance F
0.054854897
3.361368633
2.24663138
P-value
0.00991164
0.054854897
Lower 95%
260221.7201
-100.8391101
Upper 95%
1397406.763
7732.228814
2.306004135
1,397,406.764
7,732.228817
1.644853627
1.959963985
2.575829304
le. Increasing the number of suppliers increases the costs of certifying vendors and managing
pplier relationships.
0.386848791
is significant.
tion for estimating purchasing department costs with the # of purchasee orders and the # of
department cost pool into two separate cost pools, one for costs related to purchase orders
ate simple regression equation for each pool using the appropriate cost drive.
343107.6721
6.124960342
F
6.124960342
Significance F
0.02899625
P-value
0.10102841
0.064526149
0.08688758
Lower 95%
-122439.8024
-9.999951709
-546.5058866
Upper 95%
1091483.072
263.327951
6353.101463
2.364624252
1,091,483.072
263.327951
6,353.101464
1.644853627
1.959963985
2.575829304
1.887618451
2.191600362
1.99002871
3.500018051
F
3.500018051
Significance F
0.089598866
P-value
0.172797006
0.994898658
0.094299047
0.123970458
Lower 95%
-281232.7692
-0.007108942
-29.41354943
-1068.647038
Upper 95%
1248352.668
0.007147771
282.5692348
6870.108839
2.446911851
1.644853627
1.959963985
2.575829304
out the same r2, and the standard errors around the
1.547123214
0.006664422
1.985525089
1.788147391
1,248,352.669
0.007147771
282.5692351
6,870.108846
of S) + .000194148 (MP$)
# of Suppliers
0.285358146
1
# of PO
0.270157066
1
# of Suppliers
0.296190300
1
(PDC)
ould be informative.
elationships with suppliers so that
aggressively reduce the number
0.282507267
the regression
predicted y differ by this amount.
the better the goodness of fit
0.016974731
0.429019985
Problem 10-36
The Nautilus Company, which is under contract to the U.S. Navy, assembles troop deployment boats.
As part of its research program, it completes the assembly of the first of a new model (PT109) of
deployment boat. The Navy is impressed with the PT109. It requests that Nautilus submit a proposal
on the cost of producing another 6 PT109s.
Nautilus reports the following cost information for the first PT109 assembled and uses an 90%
cumulative average-time learning model as a basis for forecasting direct manufacturing labor-hours
for the next 6 PT109s. (An 90% learning curve means b = -0.152004.)
Direct materials
Direct manufacturing labor time for first boat
Direct manufacturing labor rate
Variable manufacturing overhead cost
Other manufacturing overhead
Tooling costs (1)
Learning curve for manufacturing labor time per boat
$200,000
15,000
$40
$25
20%
$280,000
90%
labor-hours
per direct manufacturing labor-hour
per direct manufacturing labor-hour
of direct manufacturing labor costs
cumulative average time (2)
(1) Tooling can be reused at no extra cost; all of its cost have been assigned to the first deployment boat.
(2) Using the formula (p. 359), for an 90% learning curve, b = ln.90/ln2 = (-0.105361/.693147) = -0.152004
Required:
1. Calculate predicted total costs of producing the six PT109s for the Navy. (Nautilus will keep the first
deployment boat assembled, costed at $1,575,000, as a demonstration model for potential customers.)
Calculation of the direct manufacturing labor-hours
to produce the 2nd to 8th boats can be calculated
as follows: y = aX to the power of b where
y = cumulative average time per unit in labor-hours
a = labor hours required for first unit
X = cumulative number of units
b = ln(learning-curve % in decimal form) / ln2
b = ln 0.90 / ln2 = -0.152003093
-0.105360516
0.693147181
-0.152003093
b=
y=aXb
Extra unit
-0.152003093
Cumulative
# of
Units
1
2
3
4
5
6
7
8
The DLHs required to produce the 2nd through the 7th boats
Cumulative
Average-time
Learning Model
1,200,000.00
2,524,580.90
1,577,863.06
504,916.18
$5,807,360.15
2. What is the dollar amount of the difference between (a) the predicted total costs for producing the
six PT109s in requirement 1, and (b) the predicted total costs for producing the six PT109s,
assuming that there is no learning curve for direct manufacturing labor? That is, for (b) assume a
linear function for units produced and direct manufacturing labor-hours.
Assumption
(a)
63,114.52
Learning Curve
$1,200,000.00
2,524,580.90
1,577,863.06
504,916.18
$5,807,360.15
Learning curve effects are most prevalent in large manufacturing industries such as airplanes and
boats where costs can run into the millions or hundreds of millions of dollars, resulting in very large
and monetarily significant differences between the two methods.
Problem 10-37
Assume the same information for the Nautilus Company as in Problem 10-36 with one exception. This exception is th
Nautilus uses an 90% incremental unit-time learning model as a basis for predicting direct manufacturing labor-hours
in its assembling operations.
1. Calculate predicted total costs of producing the 6 additional PT109s for the Navy. (Nautilus will keep the first
deployment boat assembled, costed at $1,575,000, as a demonstration model for potential customers.)
Calculation of the direct manufacturing labor-hours
to produce the 2nd to 7th boats can be calculated
as follows: y = aX to the power of b where
y = Time (in labor-hours) to produce the most recent unit
a = labor hours required for first unit
X = cumulative number of units
b = ln(learning-curve % in decimal form) / ln2
b = ln 0.90 / ln2 = -0.152003093
-0.105360516
0.693147181
-0.152003093
b=
y=aXb
Extra unit
-0.15200309
Cumulative
# of
Units
1
2
3
4
5
6
7
8
The DLHs required to produce the 2nd through the 7th boats
Incremental
Unit-time Learning
Model
$1,200,000.00
2,906,835.56
1,816,772.22
581,367.11
$6,504,974.89
2. Compare the cost of the 2nd - 7th boats using the "Incremental Unit-time Learning Model" with the costs of the 2nd
boats using the "Cumulative Average-time Learning Model:
Incremental
Unit-time Learning
Cost to produce the 2nd through 7th boats
Model
Direct materials, 6 X $200,000
$1,200,000.00
Direct manufacturing labor (DML)
2,906,835.56
Variable mfg. Overhead
1,816,772.22
Other mfg. Overhead (20% of DML$)
581,367.11
Total costs for boats 2 through 7
$6,504,974.89
Difference
Why are the predictions different?
The incremental unit-time learning curve has a slower rate of decline in the time required to produce successive un
than does the cumulative average-time learning curve even though the same 90% factor is used for both curves.
The reason is that, in the incremental unit-time learning model, as the number of units double, only the last unit
produced has a time of 90% of the initial time. In the cumulative average-time learning model, doubling the numbe
of units causes the average time of all the additional units produced (not just the last unit) to be 90% of the initial ti
Cumulative
# of
Units
1
2
3
4
5
6
7
8
How should Nautilus decide which model it should use?
The company should examine its own internal records on past jobs and seek information from engineers, plant managers, and
when deciding which learning curve better describes the behavior of direct manufacturing labor-hours on the production of the
boats.
deployment boats.
del (PT109) of
submit a proposal
uring labor-hours
manufacturing labor-hour
manufacturing labor-hour
manufacturing labor costs
0.9000
0.9402
0.9572
0.9667
0.9727
0.9768
0.9799
90% LC
Average
Time per
Cumulative
Unit (y):
Total Time:
Labor-Hrs.
Labor-Hrs.
15,000.00
15,000.00
13,500.00
27,000.00
38,079.27
12,150.00
48,600.00
58,724.00
68,542.68
78,114.52
10,935.00
87,480.00
63,114.52
Assumption
(b)
90,000.00
No
Learning Curve
$1,200,000.00
3,600,000.00
2,250,000.00
720,000.00
$7,770,000.00
$1,962,639.85
Proof
$7,770,000.00
h as airplanes and
esulting in very large
0.90
90% LC
Incremental
Unit Time for
Cumulative
Xth Unit (y)
Total Time:
Labor-Hrs.
Labor-Hrs.
15,000.00
15,000.00
13,500.00
28,500.00
41,193.09
12,150.00
53,343.09
65,087.89
76,511.67
87,670.89
10,935.00
98,605.89
72,670.89
Incremental
Unit-time Learning
Model
Cumulative
Total Time:
Labor-Hrs.
15,000.00
28,500.00
41,193.09
53,343.09
65,087.89
76,511.67
87,670.89
98,605.89
Observation
1
2
3
4
5
6
7
8
9
10
Total
Mean
b-value
Intercept
Formula
X
6
10
8
11
5
12
9
7
4
14
86
Y
22
34
29
40
19
45
30
25
18
48
Hi-Low Method
Y
48
18
30
310
31
Hi-Low
Regression
3
6
y = 6 + 3X
3.268398268
2.891774892
y=2.891774892+ 3.268398268(X)
3.268398268
2.891774892
0.988576473
0.977283443
0.974443873
1.693506825
10
0.977283443
0.977283443
0.977283443
1
8
9
SS
987.0562771
22.94372294
1010
MS
987.0562771
2.867965368
F
344.1660377
Coefficients
2.891774892
3.268398268
Standard Error
1.606987982
0.176177712
t Stat
1.799500011
18.55171253
1.799500011
18.55171253
P-value
0.109636756
7.34874E-08
ANOVA
df
Regression
Residual
Total
Intercept
X
Hi-Low
45
42
45 - 31 =
42 - 31 =
45 - 42 =
31
14
11
3
X
6
10
8
11
5
12
9
7
4
14
Y
22
34
29
40
19
45
30
25
18
48
310
31
Regression
Explained by X
Predicted Y
Residuals
22.5021645
-8.497835498
35.57575758
4.575757576
29.03896104
-1.961038961
38.84415584
7.844155844
19.23376623
-11.76623377
42.11255411
11.11255411
32.30735931
1.307359307
25.77056277
-5.229437229
15.96536797
-15.03463203
48.64935065
310
17.64935065
0.000000000
31
60
50
Hi-Low Method
X
14
4
10
40
30
20
10
0
0
Significance F
7.34874E-08
Lower 95%
-0.813946037
2.862131736
Upper 95%
6.597495821
3.674664801
344.1660377
987.0562771
1.693506825
2.867965368
1.693506825
see pg. 368 Std. error of the regression
2.306004135 = T-value for df =8
-0.813946040
6.597495824
2.862131736
3.674664801
Regression
45
2.575829304
42.11255411
1.959963985
31
14
11.11255411
2.887445887
42.11233411 - 31
45 - 42.11255411
Unexplained
Squared
Residuals
Squared
Total Variation
Total Variation
Squared
72.21320815
-0.502164502
0.252169187
-9
-9
81
20.93755739
-1.575757576
2.483011938
3.845673807
-0.038961039
0.001517963
-2
-2
61.53078091
1.155844156
1.335975713
81
138.444257
-0.233766234
0.054646652
-12
-12
144
123.4888589
2.887445887
8.337343753
14
14
196
1.709188359
-2.307359307
5.323906973
-1
-1
27.34701374
-0.770562771
0.593766983
-6
-6
36
226.0401604
2.034632035
4.139727516
-13
-13
169
311.4995783
987.0562771
-0.649350649
0.000000000
0.421656266
22.94372294
17
0
17
0
289
1010
0.977283443
0.977283443
0.977283443
0.977283443
0.977283443
r= 0.988576473
r= 0.988576473
1010
Graph -- Data
8
x
10
12
12
14
16
Month
Revenues
March
$50,000
April
$70,000
May
$55,000
June
$65,000
July
$56,000
August
$65,000
September
$45,000
October
$80,000
November
$55,000
December
$60,000
Advertising
Costs
$2,000
$3,000
$1,500
$3,500
$1,000
$2,000
$1,500
$4,000
$2,500
$2,500
Using the high-low method, determine the cost function which could
be used to estimate restaurant revenues based on advertising costs.
2
2
2
2
Revenues
$80,000
$56,000
$24,000
Costs
$4,000
$1,000
$3,000
$8.00
$80,000
$56,000
$32,000
$8,000
$48,000
$48,000
Cook Company provides you with the following original data for the past 12 months and some partial
regression analysis information:
Observation (Month)
DL Hours
January
27,750
February
24,150
March
20,835
April
16,170
May
15,000
June
19,050
July
20,850
August
22,500
September
25,650
October
28,500
November
32,250
December
33,000
Total
285,705
Mean
$23,808.75
Regression Statistics
Coefficients
Intercept
29654.03669
DL Hours
0.689807878
Observation (Month)
January
February
March
April
May
June
July
August
September
October
November
December
Total
Observation
1
2
3
4
5
6
7
8
9
OH $
$48,105 Regression
$47,850 Residual
$44,775 Total
$41,250
$39,000
$42,900
$43,950
$44,850
$46,500
$49,500
$51,750
$52,500
$552,930.00
$46,077.50
Standard Error
937.42118
0.038331436
t Stat
31.63363206
17.9958789
Predicted OH $
Explained Residuals Squared Residual
$48,796.20530
$2,718.71
$7,391,358.50
$46,312.89694
$235.40
$55,411.72
$44,026.18382
($2,051.32)
$4,207,898.06
$40,808.23007
($5,269.27)
$27,765,205.55
$40,001.15486
($6,076.35)
$36,921,970.29
$42,794.87676
($3,282.62)
$10,775,615.32
$44,036.53094
($2,040.97)
$4,165,554.70
$45,174.71394
($902.79)
$815,022.67
$47,347.60875
$1,270.11
$1,613,176.25
$49,313.56121
$3,236.06
$10,472,092.13
$51,900.34075
$5,822.84
$33,905,474.37
$52,417.69666
$6,340.20
$40,198,093.63
$552,930.00
$0.00
$178,286,873.18
$46,077.50
X
6
10
8
11
5
12
9
7
4
Y
22
34
29
40
19
45
30
25
18
10
Total
Mean
b-value
Intercept
Formula
14
86
48
310
31
Hi-Low
Regression
3
6
y = 6 + 3X
3.268398268
2.891774892
y=2.891774892+ 3.268398268(X)
0.988576473
0.977283443
0.974443873
1.693506825
10
0.977283443
0.977283443
1
8
9
SS
987.0562771
22.94372294
1010
MS
987.0562771
2.867965368
Coefficients
2.891774892
3.268398268
Standard Error
1.606987982
0.176177712
t Stat
1.799500011
18.55171253
1.799500011
18.55171253
ANOVA
df
Regression
Residual
Total
Intercept
X
X
6
10
8
11
5
12
9
7
4
14
45 - 31 =
42 - 31 =
45 - 42 =
Regression
Y
22
34
29
40
19
45
30
25
18
48
Predicted Y
22.5021645
35.57575758
29.03896104
38.84415584
19.23376623
42.11255411
32.30735931
25.77056277
15.96536797
48.64935065
Total
310
310
31
31
df
1
10
11
0.970046577
0.984909426
2.228138852
Lower 95%
27565.33215
0.604400117
2.228138842
Upper 95%
31742.74123
0.775215639
Hi-Low Method
Y
48
14
18
30
4
10
3.268398268
2.891774892
Regression Statistics
F
344.1660377
Significance F
7.34874E-08
P-value
0.109636756
7.34874E-08
Lower 95%
-0.813946037
2.862131736
Hi-Low
Regression
45
45
42
42.11255411
31
14
31
14
11
11.11255411
2.887445887
Explained by X
Residuals
344.1660377
987.0562771
2.867965368
Upper 95%
6.597495821
3.674664801
2.306004135
-0.813946040
2.862131736
42.11233411 - 31
45 - 42.11255411
Unexplained
Squared
Residuals
Squared
-8.497835498
72.21320815
-0.502164502
0.252169187
4.575757576
20.93755739
-1.575757576
2.483011938
-1.961038961
3.845673807
-0.038961039
0.001517963
7.844155844
61.53078091
1.155844156
1.335975713
-11.76623377
138.444257
-0.233766234
0.054646652
11.11255411
123.4888589
2.887445887
8.337343753
1.307359307
1.709188359
-2.307359307
5.323906973
-5.229437229
27.34701374
-0.770562771
0.593766983
-15.03463203
226.0401604
2.034632035
4.139727516
17.64935065
311.4995783
-0.649350649
0.421656266
0.000000000
987.0562771
0.000000000
22.94372294
0.977283443
0.977283443
0.977283443
0.977283443
r=
0.988576473
r=
0.988576473
Graph -60
50
40
40
30
20
10
0
0
= T-value for df =8
6.597495824
3.674664801
Total Variation
Total Variation
Squared
-9
-9
81
-2
-2
81
-12
-12
144
14
14
196
-1
-1
-6
-6
36
-13
-13
169
17
17
289
1010
1010
Graph -- Data
8
x
10
12
14
16
Mhrs.
68
88
62
72
60
96
78
46
82
94
68
48
862
Labor Costs
1190
1211
1004
917
770
1456
1180
710
1316
1032
752
963
12501
1041.75
12501
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.722103406
R Square
0.521433328
Adjusted R Square
0.473576661
Standard Error
170.5356646
Observations
12
170.5356646
ANOVA
df
Regression
Residual
Total
Intercept
Mhrs.
SS
316874.1211
290824.1289
607698.25
MS
316874.1211
29082.41289
Coefficients
Standard Error
300.9762837
229.754011
10.31239512
3.124146397
t Stat
1.309993598
3.300868081
1
10
11
187.780848
2.53294552
63.6552187
126.4687325
149.7199911
165.0337845
74.65689674
65.34645934
169.4073163
238.3414252
250.219152
167.0287504
1660.19152
138.3492934
F
Significance F
10.89573009
0.008001758
P-value
0.219491008
0.008001758
Lower 95%
Upper 95%
-210.9475525 812.9001199
3.351363186 17.27342706