The Business School at Eastern College is collecting data as a first step in the

Question

The Business School at Eastern College is collecting data as a first step in the preparation of next year's budget. One cost that is being looked at closely is administrative staff as a function of student credit hours. Data on administrative costs and credit hours for the most recent 13 months follow:

The controller's office has analyzed the data and given you the results from the regression analysis:

SUMMARY OUTPUT

ANOVA

Required:

a. In the standard regression equation y = a + bx, the letter b is best described as the:

b. In the standard regression equation y = a + bx, the letter y is best described as the:

c. In the standard regression equation y = a + bx, the letter x is best described as the:

d. If the controller uses the high-low method to estimate costs, the cost equation for administrative costs is: (Do not round your intermediate calculations.)

e. Based on the results of the controller's regression analysis, the estimate of administrative costs in a month with 1,010 credit hours would be: (Round your intermediate calculations to 2 decimals.)

f. The correlation coefficient (rounded) for the regression equation for administrative costs is:

g. The percent of the total variance (rounded) that can be explained by the regression is:

Month Administrative Costs Credit Hours July $ 124,578 255 August 85,478 125 September 228,749 1,406 October 218,538 1,007 November 258,278 1,317 December 184,451 1,126 January 219,245 1,411 February 245,408 1,610 March 209,892 1,069 April 191,989 1,133 May 249,997 1,374 June 170,687 465 July 128,877 341 Total $ 2,516,167 12,639 Average $ 193,551 972

Explanation / Answer

Solution:-

a)  In the standard regression equation y = a + bx, the letter b is best described as the Variable cost coefficient.

b)  In the standard regression equation y = a + bx, the letter y is best described as the Dependent variable.

c) In the standard regression equation y = a + bx, the letter x is best described as the Independent variable.

d) Some other equation.

High low method to determine slope.

Step 1: Select the activity with the highest and lowest amounts. Choose 49,000 and 79,000 miles (March and April).

Step 2: Select the hour adjacent to those activities: $85,478 and $258,278. Note that the chours adjacent to these activity levels will be used, even though these cost amounts are not the highest and lowest 'costs.' A1317, 125

Step 3: Determine the slope (the variable cost per unit):

           [$258,278 - $85,478]/[1317 - 125] = $ 144.97

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