Assume that a company wants to separate a mixed cost into its variable and fixed elements...

Assume that a company wants to separate a mixed cost into its variable and fixed elements for cost estimation purposes. It provided the following information:

Month	Units Produced		Mixed Cost
January	1,050	$	11,045
February	1,150	$	11,870
March	1,100	$	11,560
April	1,250	$	12,100
May	950	$	10,800
June	1,280	$	12,210
July	990	$	10,970
August	1,010	$	11,005

Assuming the company produces 1,200 units in September, using least-squares regression, the estimated total amount of the mixed cost would be closest which of the following? (Note: Round your estimate of the variable cost per unit to the nearest penny.)

Multiple Choice

$11,950
$11,908
$12,002
$11,985

Solutions

Expert Solution

Month	Units Produced	Mixed Costs	Units produced^2	Units Produced*Mixed Costs
January	1050	11045	1102500	11597250
February	1150	11870	1322500	13650500
March	1100	11560	1210000	12716000
April	1250	12100	1562500	15125000
May	950	10800	902500	10260000
June	1280	12210	1638400	15628800
July	990	10970	980100	10860300
August	1010	11005	1020100	11115050
Total	8780	91560	9738600	100952900

Unit Variable Cost (b) =	nΣxy − (Σx)(Σy)
	nΣx2 − (Σx)2

=	8100952900-(878091560)
=	8*9738600-(8780)^2

=	3726400/820400
=	4.54217

Total Fixed Cost (a) =	Σy − bΣx
	n

=	91560-4.542(8780)/8
=	6459.96


b) Equation for utility cost	y=a+bx

a	Fixed cost
b	Unit variable cost
x	Units produced

1200 units cost	6459.96+(4.54217*1200)
	11911

Option B $11908 is the correct answer.

ekkarill92 answered 1 year ago

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