In: Accounting
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.
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 | ||||||||||