COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
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Chapter 10, Problem 10.39P
Interpreting regression results. Spirit Freightways is a leader in transporting agricultural products in the western provinces of Canada. Reese Brown, a financial analyst at Spirit Freightways, is studying the behavior of transportation costs for budgeting purposes. Transportation costs at Spirit are of two types: (a) operating costs (such as labor and fuel) and (b) maintenance costs (primarily overhaul of vehicles). Brown gathers monthly data on each type of cost, as well as the total freight miles traveled by Spirit vehicles in each month. The data collected are shown below (all in thousands):
- 1. Conduct a regression using the monthly data of operating costs on freight miles. You should obtain the following result:
Regression: Operating costs = a + (b × Number of freight miles)
- 2. Plot the data and regression line for the above estimation. Evaluate the regression using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
- 3. Brown expects Spirit to generate, on average, 3,600 freight miles each month next year. How much in operating costs should Brown budget for next year?
- 4. Name three variables, other than freight miles, that Brown might expect to be important cost drivers for Spirit’s operating costs.
- 5. Brown next conducts a regression using the monthly data of maintenance costs on freight miles. Verify that she obtained the following result:
Regression: Maintenance costs = a + (b × Number of freight miles)
- 6. Provide a reasoned explanation for the observed sign on the cost driver variable in the maintenance cost regression. What alternative data or alternative regression specifications would you like to use to better capture the above relationship?
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Provide a reasoned explanation for the observed sign on the cost driver variable in the maintenance cost regression. What alternative data or alternative regression specifications would you like to use to better capture the above relationship?
Nation’s Capital Fitness, Inc. operates a chain of fitness centers in the Washington, D.C., area. The firm’s controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm’s equipment maintenance costs must be determined. The accounting staff has suggested the use of an equation, in the form of Y = a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: (image below)
Required:1. Using the high-low method of cost estimation, estimate the behavior of the maintenance costs incurred by Nation’s Capital Fitness, Inc. Express the cost behavior pattern in equation form.2. Using your answer to requirement (1), what is the variable component of the maintenance cost?3. Compute the predicted maintenance cost at 590 hours of activity.4. Compute the variable cost per hour and the fixed cost per hour at 600 hours of activity. Explain why the fixed cost per hour could be…
Nation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's
controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern
of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an
equation, in the form of Y= a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year
are as follows:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
Average
Hours of
Maintenance
Service
Variable maintenance cost
560
480
280
470
350
460
320
430
490
380
350
340
4,910
409
$
Maintenance
Costs
$ 5,110
4,240
2,730
4,300
3,030
4, 120
PR 6-38 (Algo) Part 2 What is the variable component of the maintenance cost?
2. Using your answer to requirement 1, what is the variable component of the maintenance cost?
Note: Round your answer to 2 decimal places.
3,000
3,590…
Chapter 10 Solutions
COST ACCOUNTING
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- Nation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an equation, in the form of Y= a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: Month January February March April May June July August September October November December Total Average Hours of Maintenance Service 560 480 280 470 350 Monthly maintenance cost = 460 320 430 490 380 350 340 4,910 409 Maintenance Costs $ 5,110 4,240 2,730 4,300 3,030 4,120 3,000 3,590 4,000 3,220 3,170 3,070 $ 43,580 $ 3,632 PR 6-38 (Algo) Part 1 Estimate the behavior of the maintenance costs incurred... Required: 1. Using the high-low method of cost estimation, estimate the behavior of the maintenance…arrow_forwardNation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an equation, in the form of Y = a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: Month January February March April May June July August September October November December Total Average Hours of Maintenance Service Variable maintenance cost 520 470 250 490 340 470 330 410 480 380 390 340 4,870 406 Maintenance Costs $ 5,305 4,170 2,740 4,280 3,050 4,160 3,040 3,570 3,990 3,230 3,170 3,120 $ 43,825 $ 3,652 2. Using your answer to requirement 1, what is the variable component of the maintenance cost? Note: Round your answer to 2 decimal places. ********* per hourarrow_forwardNation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an equation, in the form of Y= a + bx, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: Month January February March April May June July August September October November December Total Average Hours of Maintenance Service 560 480 280 470 350 460 320 430 490 380 350 340 4,910 409 Maintenance cost Maintenance Costs $ 5,110 4,240 2,730 4,300 3,030 4, 120 3,000 3,590 4,000 3,220 3,170 3,070 $ 43,580 $ 3,632 PR 6-38 (Algo) Part 3 Compute the predicted maintenance cost... 3. Compute the predicted maintenance cost at 670 hours of activity. Answer is complete but not entirely correct. $ 49,192 Xarrow_forward
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