1 Your clients company wants to determine the relationship b

1. Your client\'s company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:

Intercept Coefficient = 89,500

X Variable 1 Coefficient = 62.50

R- square = 0.9855

What is the company\'s monthly cost equation?

A. y = $62.50x + $89,500

B. y = $89,500x + $62.98

C. y = $89,500x + $98.55

D. y = $98.55x + $89,500

2. The managerial accountant at the Bookcase Factory prefers regression analysis to the high?low method because it is a more accurate method. The managerial accountant uses regression output and analyzes the following data to predict future costs:

y =$250x + $625

where,

y = total monthly utility cost

x = number of guests

What is the intercept coefficient, or the vertical intercept of the fixed cost line, in the equation listed above?

A. $625

B. y

C. $250x+ $625

D. $250x

3. Hyper Color Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Selling price per unit

$160

Variable manufacturing costs per unit

$62

Variable selling and administrative expenses per unit

$5

Fixed manufacturing overhead (in total)

$33,000

Fixed selling and administrative expenses (in total)

$8,000

Units produced during the year

1,800

Units sold during year

900

Using variable costing, what is the contribution margin for last year?

A. $144,000

B. $55,800

C. $204,300

D. $83,700

Solution

Answers

The correct answer is Option ‘A’: y = $62.5x + $89,500

Under regression analysis, cost equation is: y = bx +a, where,
y = total cost,
b = Variable cost per unit
x = number of variable units, and
a=total fixed cost.

Accordingly, given in question 62.5 is variable cost per unit (‘b’ part of equation) and 89500 is fixed cost (‘a’ part of equation).

As mentioned above, cost equation: y = bx (total variable cost) + a (total fixed cost)

Intercept coefficient is the fixed cost of the equation.
In the given equation, $250 is variable cost per unit and ‘x’ is number of units, while $625 is the fixed cost.

Hence, the correct answer is Option ‘A’: $625 is the intercept coefficient of the fixed cost line.

Sale price per unit = $160
Total Variable cost per unit = $ 62 + $ 5 = $ 67

Contribution margin per unit = Unit Sale price – Unit variable cost.
Unit contribution = $ 160 - $ 67 = $ 93

Total Contribution margin = Units Sold x unit contribution
Total contribution margin = 900 units x $ 93 = $ 83,700

Hence, the correct answer is Option ‘D’: $ 83,700