Question

In: Accounting

Total production cost each week in a production department have been measured for the past five...

Total production cost each week in a production department have been measured for the past five weeks as follows:

Week Units Produced Total Cost (GH₵)
1 5 20000
2 9 27000
3 4 17000
4 5 19000
5 6 23000

Required:

a. Use linear regression analysis to obtain an estimate of the fixed cost per week and the variable cost of production per unit.

b. Use your results to estimate the total cost in a week when 8 units are produced.

c. Calculate the correlation coefficient and comment on the value of r that you have obtained. (2marks)

d. Estimate a value for fixed costs and variable costs from the same data, using the high/low analysis and use the values that you have obtained to estimate the total costs in a week when 8 units are produced.

Solutions

Expert Solution

a)
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.97341986
R Square 0.94754623
Adjusted R Square 0.93006164
Standard Error 1031.0495
Observations 5
ANOVA
df SS MS F Significance F
Regression 1 57610810.8 57610810.8 54.1932203 0.0051812
Residual 3 3189189.19 1063063.06
Total 4 60800000
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 9756.75676 1621.39638 6.01750249 0.00919699 4596.74984 14916.7637 4596.74984 14916.7637
X Variable 1 1972.97297 268.008555 7.36160447 0.0051812 1120.05014 2825.89581 1120.05014 2825.89581
Fixed Cost 9756.76
Variable cost per unit 1972.97
Y = 9756.76 + 1972.97 X
b)
Total cost in week =  9756.76 + 1972.97 x 8 units 25540.54
c)
Correlation coefficient = Multiple R 0.97
Units produced and total cost  relationship is  a positive correlation coefficient.
d)
Units Produced Total Cost (GH₵)
5 20000
9 27000
4 17000
5 19000
6 23000
Variable cost per unit = (Highest Activity Cost - Lowest Activity Cost)/(Highest Activity Units - Lowest Activity Units)
Variable cost per unit = (27000 - 23000)/(9-6)units $   1,333.33
Fixed cost = Highest Activity Cost - (Variable Cost Per Units x Highest Activity Units)
Fixed cost =  27000 - (1333.33 x 9 units) $ 15,000.00
Y = $15000 + $1,333.33 x 8 units $ 25,666.67

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