The Business School at Eastern College is accumulating data as a first step in t
ID: 2415777 • Letter: T
Question
The Business School at Eastern College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the past thirteen months are shown below:
Administrative
Credit
Month
Costs
Hours
July
$ 129,178
251
August
82,312
45
September
225,565
1,461
October
216,305
936
November
258,312
1,356
December
184,642
1,080
January
218,850
1,385
February
245,313
1,343
March
210,090
1,000
April
192,034
1,174
May
249,600
1,362
June
169,958
441
July
127,749
360
Total
$ 2,509,908
12,194
Average
193,070
938
The controller's office has analyzed the data and has given you the results from the regression analysis:
Regression Statistics
Multiple R
0.9286956
R Square
0.862475539
Adjusted R Square
0.849973315
Standard Error
20,603.46887
Observations
13
Anova
df
SS
MS
F
Significance F
Regression
1
29,284,661,632
29,284,661,632
68.9857704
4.56465E-06
Residual
11
4,669,532,223
424,502,929.4
Total
12
33,954,193,856
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper
Intercept
99,167.43496
12,667.77983
7.82832006
8.02377E-06
71,285.83956
127,049.0304
71,285.83956
127,049.0304
X Variable 1
100.1091804
12.05297196
8.305767299
4.56465E-06
73.58076797
126.637593
73.58076797
126.637593
If the controller uses the high-low method to estimate costs, the fixed cost portion of the cost equation for administrative salaries is:
Administrative
Credit
Month
Costs
Hours
July
$ 129,178
251
August
82,312
45
September
225,565
1,461
October
216,305
936
November
258,312
1,356
December
184,642
1,080
January
218,850
1,385
February
245,313
1,343
March
210,090
1,000
April
192,034
1,174
May
249,600
1,362
June
169,958
441
July
127,749
360
Total
$ 2,509,908
12,194
Average
193,070
938
Explanation / Answer
High-low method:
Variable cost per hour = (Administrative cost at highest level of activity-Administrative cost at lowest level of activity)/Credit-hours at highest level of activity - credit-hours at lowest level of activity)
= ($225,565 - $82,312)/(1,461 - 45)
= $101.17
Fixed cost = Administraive cost at highst level of activity - Variable cost per hour * Credit-hours at highest level of activity
= $225,565 - ($101.17*1,461 hours)
= $77,759
Cost equation = Fixed cost + Variable cost per hour * Credit-hours
= $77,756 + 101.17*Credit-hours
So cost equation for administrative salalries is as follows:
Cost = $77,756 + $101.17*Credit-hours
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