Question

Using Regression to Calculate Fixed Cost, Calculate the Variable Rate, Construct a Cost Formula, and Determine Budgeted Cost

Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected:

Month	Labor Cost			Employee Hours
January	$7,200			360
February	8,140			550
March	9,899			630
April	9,787			590
May	8,490			480
June	7,450			350
July	9,490			570
August	7,531			310

Coefficients shown by a regression program for Pizza Vesuvio's data are:

Intercept	4,613
X Variable	8.09

In your calculations, round the variable rate per employee hour to the nearest cent.

Required:

Use the results of regression to make the following calculations:

1. Calculate the fixed cost of labor.
$

Calculate the variable rate per employee hour.
$per employee hour

2. Construct the cost formula for total labor cost.
Total labor cost = $ + ($ × Employee hours)

3. Calculate the budgeted cost for next month, assuming that 690 employee hours are budgeted. Round answer to the nearest dollar.
$

Answer 1

Requirement 1:- Calculate the fixed cost of labor.

Fixed Cost of Labor

$4,613

Fixed cost of Labor is given as Intercept i.e. 4,613

Calculate the variable rate per employee hour.

Variable Rate per employee hour

$8.09 per employee hour

Variable rate is given as X Variable i.e. 8.09

Requirement 2:- Construct the cost formula for total labor cost.

Total Labor Cost

$4613 + ($8.09 * Employee Hours)

Total labor cost = Fixed Cost + Variable Cost

Requirement 3:- Calculate the budgeted cost for next month, assuming that 690 employee hours are budgeted.

Budgeted cost for next month

$10,195

Calculation of Budgeted cost of next month:

Budgeted cost = $4,613 + ($8.09 * 690)

Budgeted cost = $4,613 + $5,582.10

Budgeted Cost = $10,195.10 or $10,195