Cost Accounting (15th Edition)
15th Edition
ISBN: 9780133428704
Author: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 10, Problem 10.34P
Interpreting regression results. Spirit Freightways is a leader in transporting agricultural products in the western provinces of Canada. Reese Brown, a financial analyst at Spirit Freightways, is studying the behavior of transportation costs for budgeting purposes. Transportation costs at Spirit are of two types: (a) operating costs (such as labor and fuel) and (b) maintenance costs (primarily overhaul of vehicles). Brown gathers monthly data on each type of cost, as well as the total freight miles traveled by Spirit vehicles in each month. The data collected are shown below (all in thousands):
- 1. Conduct a regression using the monthly data of operating costs on freight miles. You should obtain the following result:
Regression: Operating costs = a + (b × Number of freight miles)
- 2. Plot the data and regression line for the above estimation. Evaluate the regression using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
- 3. Brown expects Spirit to generate, on average, 3,600 freight miles each month next year. How much in operating costs should Brown budget for next year?
- 4. Name three variables, other than freight miles, that Brown might expect to be important cost drivers for Spirit’s operating costs.
- 5. Brown next conducts a regression using the monthly data of maintenance costs on freight miles. Verify that she obtained the following result:
Regression: Maintenance costs = a + (b × Number of freight miles)
- 6. Provide a reasoned explanation for the observed sign on the cost driver variable in the maintenance cost regression. What alternative data or alternative regression specifications would you like to use to better capture the above relationship?
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Nation’s Capital Fitness, Inc. operates a chain of fitness centers in the Washington, D.C., area. The firm’s controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm’s equipment maintenance costs must be determined. The accounting staff has suggested the use of an equation, in the form of Y = a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: (image below)
Required:1. Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Nation’s Capital Fitness, Inc. Express the cost behavior pattern in equation form.2. Using your answer to requirement (1), what is the variable component of the maintenance cost?3. Compute the predicted maintenance cost at 590 hours of activity.4. Compute the variable cost per hour and the fixed cost per hour at 600 hours of activity. Explain why the fixed cost per hour could be…
. Spirit Freightways is a leader in transporting agricultural products in
the western provinces of Canada. Reese Brown, a financial analyst at Spirit Freightways, is studying the behav-
ior of transportation costs for budgeting purposes. Transportation costs at Spirit are of two types: (a) operating
costs (such as labor and fuel) and (b) maintenance costs (primarily overhaul of vehicles).
Brown gathers monthly data on each type of cost, as well as the total freight miles traveled by Spirit
vehicles in each month. The data collected are shown below (all in thousands):
Operating Costs
$ 942
Month
Maintenance Costs
Freight Miles
$ 974
January
February
1,710
1,008
76
2,655
March
1,218
686
2,705
April
May
1,380
694
4,220
1,484
588
4,660
June
1,548
422
4,455
4,435
July
August
September
1,568
352
1,972
420
4,990
1,190
564
2,990
October
1,302
788
2,610
November
962
762
2,240
December
772
1,028
1,490
1. Conduct a regression using the monthly data of operating costs on freight miles. You should…
Nation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's
controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern
of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an
equation, in the form of Y= a + bx, for maintenance costs. Data regarding the maintenance hours and costs for last year
are as follows:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
Average
Hours of
Maintenance
Service
560
480
280
470
350
460
320
430
490
380
350
340
4,910
409
Maintenance cost
Maintenance
Costs
$ 5,110
4,240
2,730
4,300
3,030
4, 120
3,000
3,590
4,000
3,220
3,170
3,070
$ 43,580
$ 3,632
PR 6-38 (Algo) Part 3 Compute the predicted maintenance cost...
3. Compute the predicted maintenance cost at 670 hours of activity.
Answer is complete but not entirely correct.
$
49,192 X
Chapter 10 Solutions
Cost Accounting (15th Edition)
Ch. 10 - What two assumptions are frequently made when...Ch. 10 - Describe three alternative linear cost functions.Ch. 10 - What is the difference between a linear and a...Ch. 10 - High correlation between two variables means that...Ch. 10 - Name four approaches to estimating a cost...Ch. 10 - Describe the conference method for estimating a...Ch. 10 - Describe the account analysis method for...Ch. 10 - List the six steps in estimating a cost function...Ch. 10 - When using the high-low method, should you base...Ch. 10 - Describe three criteria for evaluating cost...
Ch. 10 - Define learning curve. Outline two models that can...Ch. 10 - Discuss four frequently encountered problems when...Ch. 10 - Prob. 10.13QCh. 10 - All the independent variables in a cost function...Ch. 10 - Multicollinearity exists when the dependent...Ch. 10 - Prob. 10.16ECh. 10 - Prob. 10.17ECh. 10 - Various cost-behavior patterns. (CPA, adapted)....Ch. 10 - Matching graphs with descriptions of cost and...Ch. 10 - Prob. 10.20ECh. 10 - Prob. 10.21ECh. 10 - Prob. 10.22ECh. 10 - Prob. 10.23ECh. 10 - Prob. 10.24ECh. 10 - Prob. 10.25ECh. 10 - Prob. 10.26ECh. 10 - Prob. 10.27ECh. 10 - Learning curve, cumulative average-time learning...Ch. 10 - Learning curve, incremental unit-time learning...Ch. 10 - Prob. 10.30ECh. 10 - Prob. 10.31PCh. 10 - Prob. 10.32PCh. 10 - Prob. 10.33PCh. 10 - Interpreting regression results. Spirit...Ch. 10 - Prob. 10.35PCh. 10 - Prob. 10.36PCh. 10 - Regression; choosing among models. Apollo Hospital...Ch. 10 - Multiple regression (continuation of 10-42). After...Ch. 10 - Prob. 10.39PCh. 10 - Prob. 10.40PCh. 10 - Interpreting regression results, matching time...Ch. 10 - Prob. 10.42PCh. 10 - Prob. 10.43P
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