Question
Cheetah Delivery operates a fleet of local delivery vehicles. Management wants to estimate the fixed and variable costs per mile. Industry standards indicate variable costs
Cheetah Delivery operates a fleet of local delivery vehicles. Management wants to estimate the fixed and variable costs per mile. Industry standards indicate variable costs should be no more than $.29 per mile. Cheetah collected the following data for the delivery service for last month to test against the industry standard:
Truck Number
Costs
Miles
1
$370
1280
2
360
1220
3
340
1100
4
400
1190
5
370
1190
6
420
1330
7
330
1000
8
310
940
9
410
1190
10
$400
1250
Use high low method to estimate fixed and variable portion of overhead costs based on miles driven.
What is cost of operating the delivery vehicle for 1000 miles?
Problem 2
Discount Furniture Mart, a national furniture warehouse, plans to offer a new in-store credit card. They will charge $1.50 per transaction. The following cost estimates assume 100,000 transactions during the first month the card is used:
-
- Direct Labor $44,000 (labor rate $22/hr * 2000 estimated direct labor hours)
-
- Overhead costs have not yet been estimated for the new product
-
Overhead costs have been analyzed for 12 months of data on similar activities using the simple linear regression with the following results as a basis for overhead cost estimates of the new product:
SUMMARY OUTPUT: Dependent Variable = Overhead Costs
Regression Statistics
R-square 0.8308
Standard error 617.321
Observations 12
Intercept 11,215.335
Direct labor hours 4.96
What percentage of the variation in overhead costs is explained by the independent variable?
What is the total overhead cost for an estimated activity level of 2000 direct labor hours per month?
Will the $1.5 transaction charge cover the costs of direct labor and overhead, assuming 100,000 transactions?
Problem 3
Baxter Exclusive Hotel and Spa wants to estimate personnel department costs. The following regression was obtained to determine the costs as a function of the number of employees. Three years of monthly data was used in the regression analysis.
SUMMARY OUTPUT: Dependent Variable = Personnel Costs
Regression Statistics
R-square 0.755
Standard error 609.26
Observations 36
Variable Coefficient Standard Error T-Statistic
Intercept 4214.41 2797.9 3.33
Employees 427.03 149.49 2.87
What are the estimated personnel costs for 420 employees?
How confident are you that a significant cost-driver relation exists?
Problem 4
The following data exists for Lawrence Repair, a large equipment repair company. The behavior pattern of the maintenance overhead costs must be determined to prepare the annual profit plan for next year. The cost accountant has suggested using statistical analysis to derive an equation in the form of y=mx+b for maintenance overhead costs. Monthly data regarding past parts costs, repair hours and overhead costs are provided below.
Month
Overhead Costs
Parts Cost
Repair Hours
1
9896
1068
250
2
9249
1455
250
3
13205
3503
482
4
10560
1371
286
5
9059
1547
202
6
10667
1225
382
7
12888
2989
570
8
10350
1844
346
9
11222
1657
450
10
13274
2103
546
11
10835
1248
342
12
12612
2703
414
13
10876
2203
386
14
12821
3113
406
15
8469
755
214
Prepare a graphical representation of overhead cost estimation using Parts Cost as the independent variable. Using Repair Hours as the independent variable. For both scatterplots, use good formatting to include a Figure Title, Axis labels, trend line and remove blank area on the left half of the chart at a minimum.
Compute and report the simple regression results for each of the independent variables.
Report the following from your two outputs
Parts Cost
Repair Hours
Cost Equation using regression output
Predict overhead costs for $3500 parts cost & 480 repair hours
How much of the change in overhead can be explained?
Indicate the t-statistics, is is good?
Indicate the p-value, is is good?
Construct a 95% confidence interval for the estimated coefficient.
Which activity (parts cost or repair hours) do you believe best explains the variation in overhead costs? Provide your justification from the chart.
Compute and report a multiple regression analysis using both independent variables to explain the variation in costs. Provide a single cost equation using both independent variables.
Based on the single cost equation derived from the regression analysis, predict overhead costs for $3500 parts cost & 480 repair hours.
What is the percent of the total variance that can be explained by the regression equation?
Cheetah Delivery operates a fleet of local delivery vehicles. Management wants to estimate the fixed and variable costs per mile. Industry standards indicate variable costs should be no more than $.29 per mile. Cheetah collected the following data for the delivery service for last month to test against the industry standard:
Truck Number | Costs | Miles |
1 | $370 | 1280 |
2 | 360 | 1220 |
3 | 340 | 1100 |
4 | 400 | 1190 |
5 | 370 | 1190 |
6 | 420 | 1330 |
7 | 330 | 1000 |
8 | 310 | 940 |
9 | 410 | 1190 |
10 | $400 | 1250 |
Use high low method to estimate fixed and variable portion of overhead costs based on miles driven.
What is cost of operating the delivery vehicle for 1000 miles?
Problem 2
Discount Furniture Mart, a national furniture warehouse, plans to offer a new in-store credit card. They will charge $1.50 per transaction. The following cost estimates assume 100,000 transactions during the first month the card is used:
- Direct Labor $44,000 (labor rate $22/hr * 2000 estimated direct labor hours)
- Overhead costs have not yet been estimated for the new product
Overhead costs have been analyzed for 12 months of data on similar activities using the simple linear regression with the following results as a basis for overhead cost estimates of the new product:
SUMMARY OUTPUT: Dependent Variable = Overhead Costs
Regression Statistics
R-square 0.8308
Standard error 617.321
Observations 12
Intercept 11,215.335
Direct labor hours 4.96
What percentage of the variation in overhead costs is explained by the independent variable?
What is the total overhead cost for an estimated activity level of 2000 direct labor hours per month?
Will the $1.5 transaction charge cover the costs of direct labor and overhead, assuming 100,000 transactions?
Problem 3
Baxter Exclusive Hotel and Spa wants to estimate personnel department costs. The following regression was obtained to determine the costs as a function of the number of employees. Three years of monthly data was used in the regression analysis.
SUMMARY OUTPUT: Dependent Variable = Personnel Costs
Regression Statistics
R-square 0.755
Standard error 609.26
Observations 36
Variable Coefficient Standard Error T-Statistic
Intercept 4214.41 2797.9 3.33
Employees 427.03 149.49 2.87
What are the estimated personnel costs for 420 employees?
How confident are you that a significant cost-driver relation exists?
Problem 4
The following data exists for Lawrence Repair, a large equipment repair company. The behavior pattern of the maintenance overhead costs must be determined to prepare the annual profit plan for next year. The cost accountant has suggested using statistical analysis to derive an equation in the form of y=mx+b for maintenance overhead costs. Monthly data regarding past parts costs, repair hours and overhead costs are provided below.
Month | Overhead Costs | Parts Cost | Repair Hours |
1 | 9896 | 1068 | 250 |
2 | 9249 | 1455 | 250 |
3 | 13205 | 3503 | 482 |
4 | 10560 | 1371 | 286 |
5 | 9059 | 1547 | 202 |
6 | 10667 | 1225 | 382 |
7 | 12888 | 2989 | 570 |
8 | 10350 | 1844 | 346 |
9 | 11222 | 1657 | 450 |
10 | 13274 | 2103 | 546 |
11 | 10835 | 1248 | 342 |
12 | 12612 | 2703 | 414 |
13 | 10876 | 2203 | 386 |
14 | 12821 | 3113 | 406 |
15 | 8469 | 755 | 214 |
Prepare a graphical representation of overhead cost estimation using Parts Cost as the independent variable. Using Repair Hours as the independent variable. For both scatterplots, use good formatting to include a Figure Title, Axis labels, trend line and remove blank area on the left half of the chart at a minimum.
Compute and report the simple regression results for each of the independent variables.
Report the following from your two outputs | Parts Cost | Repair Hours |
Cost Equation using regression output | ||
Predict overhead costs for $3500 parts cost & 480 repair hours | ||
How much of the change in overhead can be explained? | ||
Indicate the t-statistics, is is good? | ||
Indicate the p-value, is is good? | ||
Construct a 95% confidence interval for the estimated coefficient. | ||
Which activity (parts cost or repair hours) do you believe best explains the variation in overhead costs? Provide your justification from the chart. |
Compute and report a multiple regression analysis using both independent variables to explain the variation in costs. Provide a single cost equation using both independent variables.
Based on the single cost equation derived from the regression analysis, predict overhead costs for $3500 parts cost & 480 repair hours.
What is the percent of the total variance that can be explained by the regression equation?
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Solution Problem 1 To estimate the fixed and variable costs per mile we can use the highlow method which involves calculating the total cost at different levels of activity miles driven and then estim...Get Instant Access with AI-Powered Solutions
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