Pauline Raphal, executive assistant to the principal of Ecole Suprieure des Mines de St Etienne, is concerned

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Pauline Raphaël, executive assistant to the principal of Ecole Supérieure des Mines de St Etienne, is concerned about the overhead costs at her university. Cost pressures are severe, so controlling and reducing overheads is very important. Raphaël believes overhead costs incurred are generally a function of the number of different academic programmes (including different specialisations, degrees and research programmes) that the university has and the number of enrolled students. Both have grown significantly over the years. She collects the following data:

Pauline Raphaël, executive assistant to the principal of Ecole Supérieure

She finds the following results for two separate simple regression models:
• Regression 1. Overhead costs = a + (b × Number of academic programmes)

Pauline Raphaël, executive assistant to the principal of Ecole Supérieure

• Regression 2. Overhead costs = a + (b × Number of enrolled students)

Pauline Raphaël, executive assistant to the principal of Ecole Supérieure

Required
1. Plot the relationship between overhead costs and each of the following variables: (a) number of academic programmes, and (b) number of enrolled students.
2. Compare and evaluate the two simple regression models estimated by Raphaël. Use the comparison format employed in Exhibit 9.20.
3. What insights do the analyses provide about controlling and reducing overhead costs at the Ecole Supérieure?

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Management and Cost Accounting

ISBN: 978-1405888202

4th edition

Authors: Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, George Foster

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