Question

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Wilkens Company Wilkens Company wants to determine the cost behavior pattern of maintenance costs. Wilkens has...

Wilkens Company Wilkens Company wants to determine the cost behavior pattern of maintenance costs. Wilkens has decided to use linear regression by employing the equation y = a + bx for maintenance costs. The prior year's data regarding maintenance hours and costs, are given in the data below.

Hours of Activity Maintenance cost
January 490 5,700
February 325 4,210
March 425 5,050
April 360 4,510
May 500 5,680
June 450 5,260
July 425 5,050
August 375 4,630
September 470 5,420
October 485 5,550
November 365 4,550
December 350 4,250
total 5,020 59,860

1a.    Solve for A and B variable provide the graph (scatter gram) show trend line, formula, and R-Squared.

A

B

"R-SQUARED"

1b. Refer to the Wilkens Company. Based upon the data derived from the regression analysis, what maintenance costs should be budgeted for a month in which 485 maintenance hours will be worked?

1c. Refer to the Wilkens Company. What is the percentage of the total variance that can be explained by the regression equation?

1d. What is meant by cost behavior? Explain how it relates to the following terms: fixed, variable, and mixed cost.

Solutions

Expert Solution

Part 1 A

Equation:

y = a + bx

Y = 1424 + 8.55X

A

1424

B

8.55

"R-SQUARED"

1.00 (0.9966)

Part 1 b

Maintenance cost Y = 1424 + 8.55X

= 1424+(8.55*485) = $5571

Part 1 C

The percentage of the total variance that can be explained by the regression equation is 100%.

Part 1 D

The cost behavior refers to the change in the total costs according to the change in level of activity. Total variable costs change with the change in the level of activity. Total fixed costs remain constant irrespective of any change in the level of activity. Mixed costs are partly fixed and partly variable in nature.

ekkarill92 answered 1 year ago
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