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# Appendix 5A, Least-Squares Regression Computations

5A)LO5: Least-squares regression (Appendix LO4: Contribution format income statement LO1: Understand fixed and variable costs

## 1 2 3 4 5A1 5A2 5A3 5-6 7-8 9-10 11 12 13 14

Question Type T/F M/C M/C M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem

## LO3: High-low analysis

Difficulty

E H H H M M M H H H H

x x x x x x x x x x x

ID New,6/27/97,A New,6/28/97,A8 8/22/2004 Single MC G3 8/22/2004 Single MC H3 8/21/2004 Multi MC G3 8/21/2004 Multi MC H3 8/21/2004 Multi MC I3 New,6/29/97,A8 8/21/2004 Problem H3 8/21/2004 Problem I3 8/22/2004 Problem J3

Origin E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N.

CMA/CPA origin

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## Appendix 5A, Least-Squares Regression Computations

True / False Questions 1. The R2 (i.e., R-squared) indicates the proportion of a mixed cost that is variable. True False

Multiple Choice Questions 2. Your boss would like you to estimate the fixed and variable components of a particular cost. Actual data for this cost over four recent periods appear below.

Using the least-squares regression method, what is the cost formula for this cost? A. Y = \$24.51 + \$1.08X B. Y = \$10.33 + \$1.92X C. Y = \$0.00 + \$2.32X D. Y = \$15.80 + \$1.70X

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## Appendix 5A, Least-Squares Regression Computations

3. Delreal Inc.'s inspection costs are listed below:

Management believes that inspection cost is a mixed cost that depends on the number of units produced. Using the least-squares regression method, the estimates of the variable and fixed components of inspection cost would be closest to: A. \$20.27 per unit plus \$5,905 per month B. \$44.44 per unit plus \$10,867 per month C. \$20.68 per unit plus \$5,807 per month D. \$20.57 per unit plus \$5,837 per month

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## Appendix 5A, Least-Squares Regression Computations

4. The management of Smoots Corporation would like for you to analyze their repair costs, which are listed below:

Management believes that repair cost is a mixed cost that depends on the number of machinehours. Using the least-squares regression method, the estimates of the variable and fixed components of repair cost would be closest to: A. \$4.64 per machine-hour plus \$34,603 per month B. \$2.09 per machine-hour plus \$19,018 per month C. \$2.79 per machine-hour plus \$13,787 per month D. \$2.00 per machine-hour plus \$19,649 per month

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## Appendix 5A, Least-Squares Regression Computations

Magnano Inc.'s inspection costs are listed below:

Management believes that inspection cost is a mixed cost that depends on units produced.

5. Using the least-squares regression method, the estimate of the variable component of inspection cost per unit produced is closest to: A. \$3.51 B. \$3.49 C. \$4.93 D. \$3.54

6. Using the least-squares regression method, the estimate of the fixed component of inspection cost per month is closest to: A. \$4,400 B. \$1,290 C. \$4,585 D. \$1,318

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## Appendix 5A, Least-Squares Regression Computations

Recent maintenance costs of Pavelko Corporation are listed below:

Management believes that maintenance cost is a mixed cost that depends on machine-hours.

7. Using the least-squares regression method, the estimate of the variable component of maintenance cost per machine-hour is closest to: A. \$3.26 B. \$13.45 C. \$2.00 D. \$2.96

8. Using the least-squares regression method, the estimate of the fixed component of maintenance cost per month is closest to: A. \$7,826 B. \$6,036 C. \$7,950 D. \$6,199

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## Appendix 5A, Least-Squares Regression Computations

Meleski Corporation's recent utility costs are listed below:

Management believes that utility cost is a mixed cost that depends on machine-hours.

9. Using the least-squares regression method, the estimate of the variable component of utility cost per machine-hour is closest to: A. \$4.40 B. \$4.79 C. \$3.47 D. \$3.37

10. Using the least-squares regression method, the estimate of the fixed component of utility cost per month is closest to: A. \$4,649 B. \$5,028 C. \$16,975 D. \$16,850

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## Appendix 5A, Least-Squares Regression Computations

Essay Questions 11. Below are cost and activity data for a particular cost over the last four periods. Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity.

Required: Using the least-squares regression method, estimate the cost formula for this cost.

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## Appendix 5A, Least-Squares Regression Computations

12. Mccatty Inc. maintains a call center to take orders, answer questions, and handle complaints. The costs of the call center for a number of recent months are listed below:

Management believes that the cost of the call center is a mixed cost that depends on the number of calls taken. Required: Estimate the variable cost per call and fixed cost per month using the least-squares regression method.

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## Appendix 5A, Least-Squares Regression Computations

13. The management of Archie Corporation would like to better understand the behavior of the company's warranty costs. Those costs are listed below for a number of recent months:

Management believes that warranty cost is a mixed cost that depends on the number of product returns. Required: Estimate the variable cost per product return and the fixed cost per month using the leastsquares regression method.

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## Appendix 5A, Least-Squares Regression Computations

14. Stamp Printing Corp., a book printer, has provided the following data:

Management believes that the press setup cost is a mixed cost that depends on the number of titles printed. (A specific book that is to be printed is called a "title". Typically, thousands of copies will be printed of each title. Specific steps must be taken to setup the presses for printing each title-for example, changing the printing plates. The costs of these steps are the press setup costs.) Required: Estimate the variable cost per title printed and the fixed cost per month using the least-squares regression method.

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## Appendix 5A, Least-Squares Regression Computations Key

True / False Questions 1. The R2 (i.e., R-squared) indicates the proportion of a mixed cost that is variable. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy

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## Appendix 5A, Least-Squares Regression Computations Key

Multiple Choice Questions 2. Your boss would like you to estimate the fixed and variable components of a particular cost. Actual data for this cost over four recent periods appear below.

Using the least-squares regression method, what is the cost formula for this cost? A. Y = \$24.51 + \$1.08X B. Y = \$10.33 + \$1.92X C. Y = \$0.00 + \$2.32X D. Y = \$15.80 + \$1.70X The solution using Microsoft Excel functions is: slope = \$1.70 per activity intercept = \$15.80 per period The solution using the formulas in the text is: n=4 sumX = 102 sumY = \$237 sumXY = \$6,127 sumX2 = 2,650 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [4(\$6,127) - (102)( \$237))]/[4(2,650) - (102)^2] = \$1.70 a = [(sumY) - b(sumX)]/n = [(\$237) - \$1.70(102)]/4 = \$15.80 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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## 3. Delreal Inc.'s inspection costs are listed below:

Management believes that inspection cost is a mixed cost that depends on the number of units produced. Using the least-squares regression method, the estimates of the variable and fixed components of inspection cost would be closest to: A. \$20.27 per unit plus \$5,905 per month B. \$44.44 per unit plus \$10,867 per month C. \$20.68 per unit plus \$5,807 per month D. \$20.57 per unit plus \$5,837 per month The solution using Microsoft Excel functions is: slope = \$20.57 per unit intercept = \$5,837 per month The solution using the formulas in the text is: n=8 sumX = 1,956 sumY = \$86,933 sumXY = \$21,334,856 sumX2 = 482,118 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$21,334,856) - (1,956)( \$86,933))]/[8(482,118) - (1,956)^2] = \$20.57 a = [(sumY) - b(sumX)]/n = [(\$86,933) - \$20.57(1,956)]/8 = \$5,837 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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## Appendix 5A, Least-Squares Regression Computations Key

4. The management of Smoots Corporation would like for you to analyze their repair costs, which are listed below:

Management believes that repair cost is a mixed cost that depends on the number of machinehours. Using the least-squares regression method, the estimates of the variable and fixed components of repair cost would be closest to: A. \$4.64 per machine-hour plus \$34,603 per month B. \$2.09 per machine-hour plus \$19,018 per month C. \$2.79 per machine-hour plus \$13,787 per month D. \$2.00 per machine-hour plus \$19,649 per month The solution using Microsoft Excel functions is: slope = \$2.00 per machine-hour intercept = \$19,649 per month The solution using the formulas in the text is: n=8 sumX = 59,675 sumY = \$276,827 sumXY = \$2,064,972,610 sumX2 = 445,146,287 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$2,064,972,610) - (59,675)( \$276,827))]/[8(445,146,287) - (59,675)^2] = \$2.00 a = [(sumY) - b(sumX)]/n = [(\$276,827) - \$2.00(59,675)]/8 = \$19,649 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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## Magnano Inc.'s inspection costs are listed below:

Management believes that inspection cost is a mixed cost that depends on units produced.

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## Appendix 5A, Least-Squares Regression Computations Key

5. Using the least-squares regression method, the estimate of the variable component of inspection cost per unit produced is closest to: A. \$3.51 B. \$3.49 C. \$4.93 D. \$3.54 The solution using Microsoft Excel functions is: slope = \$3.54 per unit intercept = \$1,290 per month The solution using the formulas in the text is: n=8 sumX = 7,446 sumY = \$36,680 sumXY = \$34,166,530 sumX2 = 6,937,884 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$34,166,530) - (7,446)( \$36,680))]/[8(6,937,884) - (7,446)^2] = \$3.54 a = [(sumY) - b(sumX)]/n = [(\$36,680) - \$3.54(7,446)]/8 = \$1,290 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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## Appendix 5A, Least-Squares Regression Computations Key

6. Using the least-squares regression method, the estimate of the fixed component of inspection cost per month is closest to: A. \$4,400 B. \$1,290 C. \$4,585 D. \$1,318 The solution using Microsoft Excel functions is: slope = \$3.54 per unit intercept = \$1,290 per month The solution using the formulas in the text is: n=8 sumX = 7,446 sumY = \$36,680 sumXY = \$34,166,530 sumX2 = 6,937,884 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$34,166,530) - (7,446)( \$36,680))]/[8(6,937,884) - (7,446)^2] = \$3.54 a = [(sumY) - b(sumX)]/n = [(\$36,680) - \$3.54(7,446)]/8 = \$1,290 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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## Recent maintenance costs of Pavelko Corporation are listed below:

Management believes that maintenance cost is a mixed cost that depends on machine-hours. 7. Using the least-squares regression method, the estimate of the variable component of maintenance cost per machine-hour is closest to: A. \$3.26 B. \$13.45 C. \$2.00 D. \$2.96 The solution using Microsoft Excel functions is: slope = \$2.96 per machine-hour intercept = \$6,199 per month The solution using the formulas in the text is: n=8 sumX = 4,729 sumY = \$63,599 sumXY = \$37,616,495 sumX2 = 2,802,701 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$37,616,495) - (4,729)( \$63,599))]/[8(2,802,701) - (4,729)^2] = \$2.96 a = [(sumY) - b(sumX)]/n = [(\$63,599) - \$2.96(4,729)]/8 = \$6,199 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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## Appendix 5A, Least-Squares Regression Computations Key

8. Using the least-squares regression method, the estimate of the fixed component of maintenance cost per month is closest to: A. \$7,826 B. \$6,036 C. \$7,950 D. \$6,199 The solution using Microsoft Excel functions is: slope = \$2.96 per machine-hour intercept = \$6,199 per month The solution using the formulas in the text is: n=8 sumX = 4,729 sumY = \$63,599 sumXY = \$37,616,495 sumX2 = 2,802,701 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$37,616,495) - (4,729)( \$63,599))]/[8(2,802,701) - (4,729)^2] = \$2.96 a = [(sumY) - b(sumX)]/n = [(\$63,599) - \$2.96(4,729)]/8 = \$6,199 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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## Meleski Corporation's recent utility costs are listed below:

Management believes that utility cost is a mixed cost that depends on machine-hours.

9. Using the least-squares regression method, the estimate of the variable component of utility cost per machine-hour is closest to: A. \$4.40 B. \$4.79 C. \$3.47 D. \$3.37 The solution using Microsoft Excel functions is: slope = \$3.37 per machine-hour intercept = \$5,028 per month n=8 sumX = 28,376 sumY = \$135,800 sumXY = \$481,690,192 sumX2 = 100,651,926 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$481,690,192) - (28,376)( \$135,800))]/[8(100,651,926) - (28,376)^2] = \$3.37 a = [(sumY) - b(sumX)]/n = [(\$135,800) - \$3.37(28,376)]/8 = \$5,028 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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## Appendix 5A, Least-Squares Regression Computations Key

10. Using the least-squares regression method, the estimate of the fixed component of utility cost per month is closest to: A. \$4,649 B. \$5,028 C. \$16,975 D. \$16,850 The solution using Microsoft Excel functions is: slope = \$3.37 per machine-hour intercept = \$5,028 per month The solution using the formulas in the text is: n=8 sumX = 28,376 sumY = \$135,800 sumXY = \$481,690,192 sumX2 = 100,651,926 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$481,690,192) - (28,376)( \$135,800))]/[8(100,651,926) - (28,376)^2] = \$3.37 a = [(sumY) - b(sumX)]/n = [(\$135,800) - \$3.37(28,376)]/8 = \$5,028 Any difference in the solutions is due to rounding errors when the formulas are used.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Medium

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## Appendix 5A, Least-Squares Regression Computations Key

Essay Questions 11. Below are cost and activity data for a particular cost over the last four periods. Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity.

Required: Using the least-squares regression method, estimate the cost formula for this cost. n=4 sumX = 180 sumY = 1,382 sumXY = 62,247 sumX^2 = 8,110 b = [n(sumXY)-(sumX)(sumY)]/[n(sumX^2)-(sumX)^2] = [4(62,247)-(180)(1,382)]/[4(8,110)-(180)^2] = \$5.70 (rounded to nearest whole cent) a = [(sumY)-b(sumX)]/n = [(1,382)-5.70(180)]/4 = \$89 (rounded to nearest whole dollar) Cost formula: Y = \$89 + \$5.70X.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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## Appendix 5A, Least-Squares Regression Computations Key

12. Mccatty Inc. maintains a call center to take orders, answer questions, and handle complaints. The costs of the call center for a number of recent months are listed below:

Management believes that the cost of the call center is a mixed cost that depends on the number of calls taken. Required: Estimate the variable cost per call and fixed cost per month using the least-squares regression method. The solution using Microsoft Excel functions is: slope = \$6.38 per call intercept = \$43,652 per month The solution using the formulas in the text is: n=8 sumX = 21,016 sumY = \$483,359 sumXY = \$1,269,796,718 sumX2 = 55,211,010 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$1,269,796,718) - (21,016)(\$483,359))]/[8(55,211,010) - (21,016)^2] = \$6.38 a = [(sumY) - b(sumX)]/n = [(\$483,359) - \$6.38(21,016)]/8 = \$43,652 Any difference in the solutions is due to rounding errors when the formulas are used.

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## Appendix 5A, Least-Squares Regression Computations Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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## Appendix 5A, Least-Squares Regression Computations Key

13. The management of Archie Corporation would like to better understand the behavior of the company's warranty costs. Those costs are listed below for a number of recent months:

Management believes that warranty cost is a mixed cost that depends on the number of product returns. Required: Estimate the variable cost per product return and the fixed cost per month using the leastsquares regression method. The solution using Microsoft Excel functions is: slope = \$12.47 per product return intercept = \$3,545 per month The solution using the formulas in the text is: n=8 sumX = 275 sumY = \$31,792 sumXY = \$1,095,019 sumX2 = 9,627 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$1,095,019) - (275)(\$31,792))]/[8(9,627) - (275)^2] = \$12.47 a = [(sumY) - b(sumX)]/n = [(\$31,792) - \$12.47(275)]/8 = \$3,545 Any difference in the solutions is due to rounding errors when the formulas are used.

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## Appendix 5A, Least-Squares Regression Computations Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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## Appendix 5A, Least-Squares Regression Computations Key

14. Stamp Printing Corp., a book printer, has provided the following data:

Management believes that the press setup cost is a mixed cost that depends on the number of titles printed. (A specific book that is to be printed is called a "title". Typically, thousands of copies will be printed of each title. Specific steps must be taken to setup the presses for printing each title-for example, changing the printing plates. The costs of these steps are the press setup costs.) Required: Estimate the variable cost per title printed and the fixed cost per month using the least-squares regression method. The solution using Microsoft Excel functions is: slope = \$22.01 per title printed intercept = \$1,351 per month The solution using the formulas in the text is: n=8 sumX = 315 sumY = \$17,744 sumXY = \$706,460 sumX2 = 12,757 b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2] = [8(\$706,460) - (315)(\$17,744))]/[8(12,757) - (315)^2] = \$22.01 a = [(sumY) - b(sumX)]/n = [(\$17,744) - \$22.01(315)]/8 = \$1,351 Any difference in the solutions is due to rounding errors when the formulas are used.

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## Appendix 5A, Least-Squares Regression Computations Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Hard

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