Question

1. Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:

Intercept Coefficient = 89,500

X Variable 1 Coefficient = 62.50

R- square = 0.9855

What is the company's monthly cost equation?

A. y = $62.50x + $89,500

B. y = $89,500x + $62.98

C. y = $89,500x + $98.55

D. y = $98.55x + $89,500

2. The managerial accountant at the Bookcase Factory prefers regression analysis to the high?low method because it is a more accurate method. The managerial accountant uses regression output and analyzes the following data to predict future costs:

y =$250x + $625

where,

y = total monthly utility cost

x = number of guests

What is the intercept coefficient, or the vertical intercept of the fixed cost line, in the equation listed above?

A. $625

B. y

C. $250x+ $625

D. $250x

3. Hyper Color Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Selling price per unit	$160
Variable manufacturing costs per unit	$62
Variable selling and administrative expenses per unit	$5
Fixed manufacturing overhead (in total)	$33,000
Fixed selling and administrative expenses (in total)	$8,000
Units produced during the year	1,800
Units sold during year	900

Using variable costing, what is the contribution margin for last year?

A. $144,000

B. $55,800

C. $204,300

D. $83,700

Answer 1

• Answer to Q1

The correct answer is Option ‘A’: y = $62.5x + $89,500

Under regression analysis, cost equation is: y = bx +a, where,
y = total cost,
b = Variable cost per unit
x = number of variable units, and
a=total fixed cost.

Accordingly, given in question 62.5 is variable cost per unit (‘b’ part of equation) and 89500 is fixed cost (‘a’ part of equation).

• Answer to Q2

As mentioned above, cost equation: y = bx (total variable cost) + a (total fixed cost)

Intercept coefficient is the fixed cost of the equation.
In the given equation, $250 is variable cost per unit and ‘x’ is number of units, while $625 is the fixed cost.

Hence, the correct answer is Option ‘A’: $625 is the intercept coefficient of the fixed cost line.

• Answer to Q3

Sale price per unit = $160
Total Variable cost per unit = $ 62 + $ 5 = $ 67

Contribution margin per unit = Unit Sale price – Unit variable cost.
Unit contribution = $ 160 - $ 67 = $ 93

Total Contribution margin = Units Sold x unit contribution
Total contribution margin = 900 units x $ 93 = $ 83,700

Hence, the correct answer is Option ‘D’: $ 83,700