Ruth was attempting to estimate a model for her small business's overhead costs. She is 99.9% sure that overhead costs are driven primarily by production, but she also knows that this cost isn't entirely variable. So the grabbed the last 8 months of production and overhead cost data, listed it out, and plotted it as follows. # of Units Produced Month 1 2 3 7 250 210 280 340 360 320 270 290 Overhead Cost $2.730 1.990 2440 3.070 2,740 2,980 2440 3,240
Ruth was attempting to estimate a model for her small business's overhead costs. She is 99.9% sure that overhead costs are driven primarily by production, but she also knows that this cost isn't entirely variable. So the grabbed the last 8 months of production and overhead cost data, listed it out, and plotted it as follows. # of Units Produced Month 1 2 3 7 250 210 280 340 360 320 270 290 Overhead Cost $2.730 1.990 2440 3.070 2,740 2,980 2440 3,240
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Accounting
Transcribed Image Text:(a1)
Ruth is planning to use the high-low method to estimate this cost function. Is it important for the data to exhibit a linear
relationship when using this method?
It
(b)
is
Your answer is correct.
eTextbook and Media
Y-S
important for the data to exhibit a linear relationship.
Help Ruth estimate her company's overhead costs using the high-low method. Write your final model in YmX)+ b format.
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Transcribed Image Text:Ruth was attempting to estimate a model for her small business's overhead costs. She is 99.9% sure that overhead costs are driven
primarily by production, but she also knows that this cost isn't entirely variable. So she grabbed the last 8 months of production and
overhead cost data, listed it out, and plotted it as follows
Month
1
2
3
4
5
6
7
8
(a1)
# of Units Produced
is
250
210
280
340
360
320
270
290
Your answer is correct
Overhead Cost
$2,730
eTextbook and Media:
1.990
2440
3.070
2,740
Ruth is planning to use the high-low method to estimate this cost function is it important for the data to exhibit a linear
relationship when using this method?
important for the data to exhibit a linear relationship.
2,980
2440
3.240
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