managerial accounting paper

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Question 1: Cost estimation
1. High-low method.
a) Highest point: the highest point is in October, i.e. 1800 technical hours and
maintenance costs of $83,000.
Lowest point: the lowest point is in July at 1200 technical hours and maintenance
costs of $62,500.
b) The variable cost per unit of cost driver.
Using High-low method:
Variable cost per unit = Highest Activity Cost - Lowest Activity Cost
Highest Activity Units - Lowest Activity Units
Variable cost per unit = (83,000 – 62500)
(1800 – 1200)
Variable cost per unit = $34.2
c) The fixed cost.
Let’s pick one point, for example in July when the corresponding technical hours and
maintenance costs are 1800 and 83000 respectively.
The cost equation cost is given as follows: Y = a + bx, where Y is the maintenance
cost, a is the fixed cost, b is the variable cost per unit and x is the number of units.
Therefore,
$62500 = a + 34.2(1200)
a = $62500 – 41040 = 21,460
Therefore, the fixed cost = $21,460
d) Cost equation:
Since the equation is given in form of Y = a + bx, where,
a= 21,460

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b = 34.2
The equation can be expressed as Y = 21,460 + 34.2X
Where Y is the cost, and X is the number of units.
2. Prediction for next month.
We are given that the technical hours for next month will be 1550 hours.
The forecasting equation is given as Y = 21,460 + 34.2X
Therefore, at 1550 hours,
Y = 21,460 + 34.2(1550)
Y = $74,470
3. Excel spreadsheet
The results of regression analysis on excel are given as follows:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.956487
R Square 0.914868
Adjusted R Square
0.906355
Standard Error
2106.918
Observations
12
ANOVA
df
Regression
Residual
Total

SS
MS
F Significance F
1 4.77E+08 4.77E+08 107.4647 1.14E-06
10 44391048 4439105
11 5.21E+08

Coefficients
Standard Error t Stat
P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 16605.21 5381.403 3.085666 0.011529 4614.698 28595.72 4614.698 28595.72
X Variable 136.34686 3.506178 10.36652 1.14E-06 28.53461 44.15911 28.53461 44.15911

a) From the regression analysis using excel, the variable cost per unit (X variable
coefficient = 36.3
b) The fixed cost per unit (Y intercept) = 16,605.21
c) Therefore, the cost estimation equation can be given as follows:
Y = 16,605.21 + 36.3X
d) Multiple regression is required to explain cost behaviour when there are two or
more than two independent variable which explain the cost behaviour, for

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example where cost is a function of direct labor hours as well as the number of
units produced.
4. Cost estimation when technical hours = 1550
Cost equation is given as: Y = 16,605.21 + 36.3X
Therefore, Y = 16,605.21 + 36.3(1550)
Y= Cost = $72,870.21
5. The coefficient of determination assesses how well a model is able to explain and predict
future outcomes. In cost behaviour, the coefficient of determination assesses how well the
independent variable, for example the technical hours is able to estimate the cost and
therefore, the measure of coefficient of determination should be considered in the analysis
using the least square ...


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