High-Low Cost Estimation and Simple Regression Analysis Assume we have the follo

Question

High-Low Cost Estimation and Simple Regression Analysis Assume we have the following observations relating to overhead costs and direct lab hours for Department A of the ABC Company Direct Labor Hours Qverhead Costs 40 15 5 20 14 13 18 15 12 16 18 19 35 30 36 31 41 45 mon 1) Determine the budgeted overhead costs for Department A in a are 13 direct labor hoursifthe high low method of estimating cosmoath when ng cost behay is used Using regression analysis determine what the budgeted overh cost should be in a e) t labor hours. Does the regression line in (2) explain the data well? Why What is the range within which 95 percent of the observations s hould lie?

Explanation / Answer

calculation procedure for regression

mean of X = X / n = 16

mean of Y = Y / n = 39.4

(Xi - Mean)^2 = 64

(Yi - Mean)^2 = 364.4

(Xi-Mean)*(Yi-Mean) = 147

b1 = (Xi-Mean)*(Yi-Mean) / (Xi - Mean)^2

= 147 / 64

= 2.29688

bo = Y / n - b1 * X / n

bo = 39.4 - 2.29688*16 = 2.65

value of regression equation is, Y = bo + b1 X

Y'=2.65+2.29688* X

when Department A should work direct 13 labour hours budget overcost should in a month.
Y' = 2.65 + 2.29688*13
Y' = 32.50944

Line of Regression Y on X i.e Y = bo + b1 X X Y (Xi - Mean)^2 (Yi - Mean)^2 (Xi-Mean)*(Yi-Mean) 15 40 1 0.36 -0.6 20 50 16 112.36 42.4 14 35 4 19.36 8.8 13 30 9 88.36 28.2 18 44 4 21.16 9.2 15 36 1 11.56 3.4 12 31 16 70.56 33.6 16 41 0 2.56 0 18 42 4 6.76 5.2 19 45 9 31.36 16.8   

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