Question

Fletcher Inc. is a local delivery company. The employees handle deliveries for a variety of companies that have developed apps that allow customers to place orders for food, beverages, packages, etc. The controller of Fletcher would like to come up with an estimate of the cost behavior for the delivery costs. Fifteen months of data were collected, and the data appear below.

Using the high-low method, the controller did a quick calculation and estimated the variable and fixed portions of the delivery costs. A new employee in the accounting department, however, suggested that regression would give a much better estimate of the costs.

Observation		Delivery Costs		Number of Deliveries
1		$148,620		11,540
2		150,980		12,180
3		199,200		16,560
4		143,100		11,685
5		203,695		16,685
6		183,065		14,875
7		156,390		13,010
8		193,440		13,010
9		189,330		15,555
10		151,200		11,970
11		158,445		12,630
12		188,085		15,300
13		182,320		14,580
14		144,520		11,980
15		155,680		13,000

Required

1. Using the given data, determine the estimated cost equation for delivery costs using the high-low method.

2. Using the data available, determine the estimated cost equation for the delivery costs using regression.

3. Graph the data to determine if any adjustments should be made to the regression analysis done in requirement 2.

4. Recompute the estimated cost equation for the delivery costs after making any adjustments to the data as a result of your analysis in requirement 3. What can you conclude about the various cost equations?

Answer 1

1.Using the given data, determine the estimated cost equation for delivery costs using the high-low method.

Formula:

b = (Y2 - Y1) / (X2 - X1)

T = Y2 - (b × X2) = Y1 - (b × X1)

y = T + (b × X)

Where,

b = Variable Cost per Unit

Y2 = High Cost

Y1 = Low Cost

X2 = High Unit

X1 = Low Unit

T = Total Fixed Cost

y = Cost Volume

therefore we get ,

High Cost (y2)=203,695 ,Low Cost (y1)=143,100 , High Unit (x2)= 16,685 and Low Unit (x1)=11,685

Using above formula ,

Variable Cost Per Unit (b) =12.119

Total Fixed Cost (T) =1489.485

Cost Volume (y) =1489.485+12.119x

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2.Using the data available, determine the estimated cost equation for the delivery costs using regression.

----> Using Minitab software

Welcome to Minitab, press F1 for help.

Regression Analysis: Delevery Cost(y) versus Number of delevaries(x)

Analysis of Variance

Source DF Seq SS Contribution Adj SS Adj MS F-Value
Regression 1 5501728598 82.97% 5501728598 5501728598 63.31
Number of delevaries(x) 1 5501728598 82.97% 5501728598 5501728598 63.31
Error 13 1129648565 17.03% 1129648565 86896043
Lack-of-Fit 12 443297315 6.68% 443297315 36941443 0.05
Pure Error 1 686351250 10.35% 686351250 686351250
Total 14 6631377164 100.00%

Model Summary

S R-sq R-sq(adj) PRESS R-sq(pred)
9321.80 82.97% 81.65% 1343180188 79.75%

Coefficients

Term Coef SE Coef 95% CI T-Value P-Value VIF
Constant 18675 19153 (-22702, 60053) 0.98 0.347
Number of delevaries(x) 11.09 1.39 ( 8.08, 14.10) 7.96 0.000 1.00

Regression Equation

Delevery Cost(y) = 18675 + 11.09 Number of delevaries(x)

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3.Graph the data to determine if any adjustments should be made to the regression analysis done in requirement

Thank You.....