Question

This is in response to a reply from one of the tutor's that the question was not listed. Here is the problem as indicated in the textbook:

It is chapter 3, Problem 43 of the cost accounting textbook. The Problem: Sympco Glass manufactures insulated windows. The firm's repair and maintenance (R & M) cost is mixed and varies most directly with machine hours worked. The following data have been gathered from recent operations:

May	1,400	$9,000
June	1,900	10,719
July	2,000	10,900
August	2,500	13,000
September	2,200	11,578
October	2,700	13,160
November	1,700	9,525
December	2,300	11,670

The first column are the month's listed. The second column is machine hours and the third column is R & M cost.

a. Use the high-low method to estimate a cost formula for repairs and maintenance.

b. Use the least squares regression to estimate a cost formula for repairs and maintenance.

c. Does the answer to (a) or (b) provide the better estimate of the relationship between repairs and maintenance costs and machine hours? Why?

The question I have has to do with item (b) of questions 43. In the textbooks solutions, step 8 of 11 shows a table to estimate the least square regression. There are five columns. The table has the months as I provided above in one column.   Machine hours which represents (x) in the second column. The Cost which represents the (y) in the third column. The next column is xy which is a computational column where you multiply column x times column y line by line. The final column is the x squared column. This is where I am having a problem. I do not know how the figures in that column are computed. There is no explanation for that column.

Can you please advise me how that is computed because the of that column which is 36,130,000 I need to plug into the equation which is in step 10 of this problem.

Please advise.

thanks for your help.

Best regards,

Janet Napoletano

Answer 1

Machine Hours	R & M Cost
X	Y	XY	X^2 = X * X
1,400	$         9,000.00	$ 1,26,00,000.00	19,60,000
1,900	$       10,719.00	$ 2,03,66,100.00	36,10,000
2,000	$       10,900.00	$ 2,18,00,000.00	40,00,000
2,500	$       13,000.00	$ 3,25,00,000.00	62,50,000
2,200	$       11,578.00	$ 2,54,71,600.00	48,40,000
2,700	$       13,160.00	$ 3,55,32,000.00	72,90,000
1,700	$         9,525.00	$ 1,61,92,500.00	28,90,000
2,300	$       11,670.00	$ 2,68,41,000.00	52,90,000
16,700	89,552	19,13,03,200	3,61,30,000
X bar = Total Machine Hours/ Total months
X bar = 16700 / 8	2087.5
y bar = Total R & M Cost / Total Months
Y bar = $89,552/8	11194
Cost Equation = a + b x Machine hours
b = (NΣxy − Σx Σy)/N(Σx^2) − (Σx^2
b = (8 x 191303200 − 16700 x 89552)/(8 x 36130000)- 16700^2)	$                3.44
a = y bar - a x Xbar
a = 11194 - (3.44 x 2087.5)	$         4,014.81
Cost Equation = 4014.81 + $3.44 x MH