REVEL for Horngren's Cost Accounting: A Managerial Emphasis -- Access Card (16th Edition) (What's New in Accounting)
16th Edition
ISBN: 9780134789705
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 10, Problem 10.32E
High-low, regression. May Blackwell is the new manager of the materials storeroom for Clayton Manufacturing. May has been asked to estimate future monthly purchase costs for part #696, used in two of Clayton’s products. May has purchase cost and quantity data for the past 9 months as follows:
Manufacturing. May has been asked to estimate future monthly purchase costs for part #696, used in two of Clayton’s products. May has purchase cost and quantity data for the past 9 months as follows:
| Month | Cost of Purchase | Quantity Purchased |
| January | $12,675 | 2,710 parts |
| February | 13,000 | 2,810 |
| March | 17,653 | 4,153 |
| April | 15,825 | 3,756 |
| May | 13,125 | 2,912 |
| June | 13,814 | 3,387 |
| July | 15,300 | 3,622 |
| August | 10,233 | 2,298 |
| September | 14,950 | 3,562 |
Estimated monthly purchases for this part based on expected demand of the two products for the rest of the year are as follows:
| Month | Purchase Quantity Expected |
| October | 3,340 parts |
| November | 3,710 |
| December | 3,040 |
- 1. The computer in May’s office is down, and May has been asked to immediately provide an equation to estimate the future purchase cost for part #696. May grabs a calculator and uses the high-low method to estimate a cost equation. What equation does she get?
Required
- 2. Using the equation from requirement 1, calculate the future expected purchase costs for each of the last 3 months of the year.
- 3. After a few hours May’s computer is fixed. May uses the first 9 months of data and regression analysis to estimate the relationship between the quantity purchased and purchase costs of part #696. The regression line May obtains is as follows:
Evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance of the independent variable. Compare the regression equation to the equation based on the high-low method. Which is a better fit? Why?
- 4. Use the regression results to calculate the expected purchase costs for October, November, and December. Compare the expected purchase costs to the expected purchase costs calculated using the high-low method in requirement 2. Comment on your results.
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Chapter 10 Solutions
REVEL for Horngren's Cost Accounting: A Managerial Emphasis -- Access Card (16th Edition) (What's New in Accounting)
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