Question

2. WRKSHT 2 – High/Low Method Computations

a. Determine the Cost Estimation Equations assuming

i. Independent Variable = “Thousands of Units Produced”

ii. Independent Variable = “Number of Paid Days”

b. Determine the Cost Estimates for the cost equations above. (SEE BELOW for “Information for Computing Cost Estimates” on next page)

3. WRKSHT 3 – Simple Regression - Indep. Variable = “Thousands of Units Produced”

a. Complete and format the regression results, then

b. Document the cost estimation equation, and c. Determine the cost estimate using the equation determined in b.

(SEE BELOW for “Information for Computing Cost Estimates” on next page)

4. WRKSHT 4 – Simple Regression - Indep. Variable = “Number of Paid Days”

a. Complete and format the regression results, then

b. Document the cost estimation equation, and

c. Determine the cost estimate using the equation determined in b.

(SEE BELOW for “Information for Computing Cost Estimates” on next page)

5. WRKSHT 5 – Multiple Regression Analysis

a. Complete and format the regression results, then

b. Document the cost estimation equation

c. Determine the cost estimate using the equation determined (SEE BELOW for “Information for Computing Cost Estimates”)

INFORMATION FOR COMPUTING COST ESTIMATES: Assume that Angora Wraps for next January estimates that it will produce 140 thousand Units of Product and expect 23 Paid Days. To Do: Calculate the 5 cost estimates using the 5 cost estimation equations you’ve developed from the High/Low (2), Simple (2), and Multiple Regression (1) worksheets. Document each of these cost estimates on each of your applicable worksheets.

Month	Thousands of Units Produced	Number of Paid Days	Direct Labor Cost
January	98	20	$14,162
February	76	20	$12,994
March	75	21	$15,184
April	80	22	$15,038
May	85	22	$15,768
June	102	21	$15,330
July	52	19	$13,724
August	136	21	$14,162
September	138	22	$15,475
October	132	23	$15,475
November	86	18	$12,972
December	56	21	$14,074

Answer 1

A	B	C	D	E	F	G	H
2
3
4		In high-low method the cost for highest and lowest level of activity is used to predict cost at a particular activity level.
5		a) (i)
6		Calculation of cost using Hi-Low Method assuming Thousands of units produced as independent variable:
7			Thousands of units produced	DL Cost
8		Min	56	$14,074
9		Max	138	$15,475
10
11		Variable cost	=(change in cost)/(change in Units)	17.09	=(E9-E8)/(D9-D8)
12		Fixed Cost		$13,117.22	=E8-D8*E11
13
14		Thus the cost equation will be
15		Direct Labor Cost = $13,117.22 + 17.09*Thousands of units produced
16
17		a) (ii)
18		Calculation of cost using Hi-Low Method assuming number of paid days as independent variable:
19			Number of Paid Days	DL Cost
20		Min	18	$12,972
21		Max	23	$15,475
22
23		Variable cost	=(change in cost)/(change in Paid Days)	500.60	=(E21-E20)/(D21-D20)
24		Fixed Cost		$3,961.20	=E20-D20*E23
25
26		Thus the cost equation will be
27		Direct Labor Cost = $3,961.20 + 500.60*Number of Paid Days.
28
29		a) (iii)
30		Calculation of cost estimated for January using thousands of units produced as independent variable.
31		Thousands of units estimated	140
32		Direct Labor Cost	= $13,117.22 + 17.09*Thousands of units produced
33			= $13,117.22 + 17.09*140
34			$15,509.82	=13117.22+17.09*D31
35
36		Hence direct Labor	$15,509.82
37
38		Calculation of cost estimated for January using number of paid days as independent variable.
39		Number of paid days	23
40		Direct Labor Cost	= $3,961.20 + 500.60*Number of Paid Days
41			= $3,961.20 + 500.60*23
42			15475	=3961.2+500.6*D39
43
44		Hence direct Labor	$15,475.00
45

Formula sheet

A	B	C	D	E	F	G	H
2
3
4		In high-low method the cost for highest and lowest level of activity is used to predict cost at a particular activity level.
5		a) (i)
6		Calculation of cost using Hi-Low Method assuming Thousands of units produced as independent variable:
7			Thousands of units produced	DL Cost
8		Min	56	14074
9		Max	138	15475
10
11		Variable cost	=(change in cost)/(change in Units)	=(E9-E8)/(D9-D8)	=getformula(E11)
12		Fixed Cost		=E8-D8*E11	=getformula(E12)
13
14		Thus the cost equation will be
15		Direct Labor Cost = $13,117.22 + 17.09*Thousands of units produced
16
17		a) (ii)
18		Calculation of cost using Hi-Low Method assuming number of paid days as independent variable:
19			Number of Paid Days	DL Cost
20		Min	18	12972
21		Max	23	15475
22
23		Variable cost	=(change in cost)/(change in Paid Days)	=(E21-E20)/(D21-D20)	=getformula(E23)
24		Fixed Cost		=E20-D20*E23	=getformula(E24)
25
26		Thus the cost equation will be
27		Direct Labor Cost = $3,961.20 + 500.60*Number of Paid Days.
28
29		a) (iii)
30		Calculation of cost estimated for January using thousands of units produced as independent variable.
31		Thousands of units estimated	140
32		Direct Labor Cost	= $13,117.22 + 17.09*Thousands of units produced
33			= $13,117.22 + 17.09*140
34			=13117.22+17.09*D31	=getformula(D34)
35
36		Hence direct Labor	=D34
37
38		Calculation of cost estimated for January using number of paid days as independent variable.
39		Number of paid days	23
40		Direct Labor Cost	= $3,961.20 + 500.60*Number of Paid Days
41			= $3,961.20 + 500.60*23
42			=3961.2+500.6*D39	=getformula(D42)
43
44		Hence direct Labor	=D42
45