Question

Tempe Office Services and Supplies (TOSS) provides various products and services in the Tempe Research Park, home to numerous high-tech and bio-tech companies. Making color copies is one of its most popular and profitable services. The controller performed a regression analysis of data from the Color Copy Department with the following results:

Intercept	139.68693
R square	0.9014
Number of observations	6
X coefficient	0.075859

The regression output was based on the following data:

Month	Number of Color Copies		Color Copy Department Costs
July	20,550		$	1,695
August	22,650			1,810
September	21,650			1,830
October	19,400			1,565
November	18,400			1,555
December	21,750			1,820

Required:

1. What is the variable cost per color copy for TOSS?

2. What is the fixed cost for the Color Copy Department?

3. Based on the regression output obtained by the controller, what cost formula should be used to estimate future total costs for the Color Copy Department? Enter answer as an equation in the form of y = a + bx.

5-a. Use the high-low method to estimate the variable and fixed costs for the Color Copy Department.

5-b. What cost formula should be used based on your analysis? Enter answer as an equation in the form of y = a + bx.

6. If 21,300 copies are made during January, what is the total cost predicted by each method?

Answer 1

1	Variable cost per color copy=X coefficient=$ 0.075859
2	Fixed cost for the Color Copy=Intercept=$ 139.68693
3	y=a + bx
	Where,
	y=Total cost
	a=Fixed cost=$ 139.68693
	b=Variable cost per color copy=$ 0.075859
	x=Number of color copies
	Total cost,y=139.68693 + 0.075859x
5-a.	Under High low method,Consider the Highest and Lowest activity and then apply the following equation
	Variable cost per color copy=Change in Total cost/Change in number of copies
	To find fixed cost, Apply variable cost per unit in Lowest or highest activity
	Fixed cost=Total cost-(Variable cost per color copy*Number of copies sold)
	Highest activity is in August (22650 copies sold)
	Lowest activity is in Novemebr (18400 copies sold)
	Variable cost per color copy=Change in Total cost/Change in number of copies=(1810-1555)/(22650-18400)=$ 0.06
	Apply variable cost per unit in highest activity
	Fixed cost=Total cost-(Variable cost per color copy*Number of copies sold)=1810-(22650*0.06)=$ 451
5-b.	y=a + bx
	Where,
	y=Total cost
	a=Fixed cost=$ 451
	b=Variable cost per color copy=$ 0.06
	x=Number of color copies
	Total cost,y=451 + 0.06x
6	Total cost for 21300 copies:
	Regression method,
	Total cost,y=139.68693 + 0.075859x=139.68693 + (0.075859*21300)=$ 1755.484
	High low method,
	Total cost,y=451 + 0.06x=451+(0.06*21300)=$ 1729