2.50 points PA5-1 Estimating Cost Behavior Using Scattergraph, High-Low, and Lea

Question

2.50 points PA5-1 Estimating Cost Behavior Using Scattergraph, High-Low, and Least-Squares Regression Methods [LO 5-2, 5-3, 5-4] Garfield Company manufactures a popular brand of dog repe lant known as DogGone It, which it sells in gallon-size bottles with a spray attachment. The majority of Garfield's business comes from orders placed by homeowners who are trying to keep neighborhood dogs out of their yards. Garfield's operating information for the first six months of the year follows: Number of Bottles Operating Cost Month anuary February March April May June Sold 1,060 1,460 1,850 2.420 3,420 3,800 S 10,770 15,670 15,920 19,540 27,820 34,820 Required: 3. Using the high-low method, calculate Garfield's total fixed operating costs and variable operating cost per bottle. (Do not round your intermediate calculations. Round your variable cost per unit answer to 2 decimal places and fixed cost answer to the nearest whole number.) Variable Cost per Unit Fixed Cot 4. Perform a least-squares regression analysis on Garfield's data. (Use Microsoft Excel or a statistical package to find the coefficients using least-squares regression. Round your answers to 3 decimal places.) Intercept X Variable 1 5. Determine how well this regression analysis explains the data. (Round you regression statistics to three decimal places and your percentage answer to the nearest whole number.)

Explanation / Answer

3)

The table is as follows.

By the high-low method.

Find the range (max-min) of Y variable and find the range of x-variable

divide y-range by x-range to get the operating cost.

variable cost = y-range/ x-range = 24050/2740 = 8.777

fc +3800*8.777 = 34820

fc = 1465.98

4)

Performing a regression in excel,

intercept is 2062.752

x variable is 8.006

5)

since the r square is nearby to 95%, it explains approxmately 95% of any variation in the data. As in for any change in the number of bottles, the model explains 95% of the operating cost.

6)

the linear cost equation using the regression model is

total cost = 2062.75+8.006 * no. of bottles

No. of bottles Operating cost Max 3800 34820 Min 1060 10770 Range 2740 24050

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