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Cost Estimation - Astana Equipment SDN
Cost Estimation - Astana Equipment SDN
Total
Month Units shipped Shipping Cost
(RM)
January 1100 7150
February 1400 7950
March 1380 8350
April 1250 7425
May 890 5730
June 900 5730
July 850 5450
August 700 5150
September 1500 8000
October 800 5550
November 1200 7000
December 750 5200
The manager of the company, Encik Hanafi facing a difficulty to control its shipping
costs. At first he regarded shipping costs purely as variable cost. However he
realised that the pattern of this cost is not as expected. This pattern suggested to
the manager that part of the shipping cost was probably fixed cost. He decided to
use regression analysis to explore this issue. After consulting with the expert, he
considered to use unit shipped as a cost driver for shipping cost. He obtained the
following output based on monthly data.
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
ANOVAa
Model Sum of Df Mean Square F Sig.
Squares
Regression 15285395.008 1 15285395.008 224.150 .000b
1 Residual 681927.909 10 68192.791
Total 15967322.917 11
a. Dependent Variable: Shipping Cost
b. Predictors: (Constant), Unit shipped
Coefficientsa
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) 2090.319 307.725 6.793 .000
1
Unit shipped 4.214 .281 .978 14.972 .000
a. Dependent Variable: Shipping Cost
Required:
a. Based on the regression output above answer the following:
Y=a+bX
Y = RM 2,350 + RM 4.00X
ii. Do you think that the decision to use unit shipped as a cost driver is a good
decision? Explain your answer.
Yes, the decision to use unit shipped as a cost driver is a good decision
because it is activity-based cost.
b. How do you determine that the shipping cost is not purely variable cost? Explain
your answer.
The variable cost is determined by identifying the cost per unit using high low
method.
c. By using the high-low method develop a cost formula to express the cost
behaviour exhibited by the shipping cost. (State the answer for variable cost per
unit in four decimal points)
d. Encik Hanafi wants to estimate the total shipping costs for 2,000 units shipped by
using the cost formula that in (c) above. What advice you will give to Encik
Hanafi?