Computer Project # 2

Due April 1

* If you are familiar with "Excel" do the following problem using the High-Low Method or Regression Analysis and turn in the Excel file including your recommendation. If you use Mac, refer to Instructions posted in Bb Assignment.

*To run the regression using the Excel Program, use Tools, Data Analysis, Regression and choose x cost driver and y costs we want to predict. If you use regression for the first time, click Tools, Adds-in, Analysis toolpak, Regression just for setting up the regression program once.

Problem: The King Corporation is developing a model to explain and predict overhead costs. It produces only one product-line so that a simple count of the number of units produced each month may be a good measure of activity to begin with. The company has collected data for the past twelve months:

Month Overhead Production Cost Units

---- ------------ ----------

1 $250,000 34,000

2 184,000 25,000

3 165,000 21,000

4 178,000 23,000

5 192,000 26,000

6 225,000 29,000

7 210,000 28,000

8 230,000 29,000

9 195,000 27,000

10 224,000 29,000

11 200,000 30,000

12 240,000 32,000

Required:

Open a spreadsheet and enter the data.

Create another worksheet and enter formula to calculate variable cost per unit and total fixed costs. Use y = aX + b formula. Enter a (variable cost per unit) in Cell 20B and b (total fixed costs) in Cell 20C.

Create another worksheet and run regression (Least Squared Method) and save the output.

Create another worksheet and save both outputs by linking worksheets. Determine whether the High-Low method or Regression Analysis is better to predict monthly overhead costs. Explain which model is the better? Why or why not?

Use absolute cell address in y = aX + b formula (Use absolute August X Value) to predict January and December overhead costs. Do you think these predicted overhead costs are reasonable? (Refer to our textbook from pp. 209-211 for regression analysis details.)