COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
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Chapter 10, Problem 10.43P
Multiple regression (continuation of 10-42). After further discussion, Julie and Rhett wonder if they should view both the number of procedures and number of patient-hours as cost drivers in a multiple regression estimation in order to best understand Apollo’s medical supplies costs.
- 1. Conduct a multiple regression to estimate the regression equation for medical supplies costs using both number of procedures and number of patient-hours as independent variables. You should obtain the following result:
Required
Regression 3
Medical supplies costs = a + (b1 × No. of procedures) + (b2 × No. of patient-hours)
- 2. Evaluate the multiple regression output using the criteria of economic plausibility goodness of fit, significance of independent variables, and specification of estimation assumptions.
- 3. What potential issues could arise in multiple regression analysis that are not present in simple regression models? Is there evidence of such difficulties in the multiple regression presented in this problem? Explain.
- 4. Which of the regression models from Problems 10-42 and 10-43 would you recommend Julie Chen use? Explain.
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Recent research into the cost of various medical procedures has shown the impact of certain complications encountered in surgery on the total cost of a patient’s stay in the hospital. The researchers used regression analysis and found the following results:
Total cost for patient = Constant, plus
a × Length of stay (measured in days), plus
b × Presence of one or more complications (= 1 if true, 0 if false), plus
c × Use of a laparoscope (= 1 if true, 0 if false)
where a, b, c are coefficients of the regression model. The laparoscope is an instrument somewhat like a miniature telescope with a fiber-optic system that brings light into the abdomen. It is about as big around as a fountain pen and twice as long.
The research, based on 63 patients, showed the following regression results:
R-squared: 56%
Constant term: $3,158
Coefficients and t-values for independent variables:
Length of Stay
Complications
Laparoscope
Coefficient
$ 887
$ 1,912
$ 928
t-value
7.51
5.30…
Use the information below or using Exhibit 12.14 on page 577 in Zelman to answer the following questions.
Calculate the per unit cost of an initial visit using both the conventional and ABC approaches.
Calculate the per unit cost of a regular visit using both the conventional and ABC approaches.
Calculate the per unit cost of an intensive visit using both the conventional and ABC approaches.
Exhibit 12-14
Basic data and calculation of unit costs using a conventional approach
Total Cost by Visit Type
Basic Data
A
B
C
D
Initial
Regular
Intensive
Total
(Given)
(Given)
(Given)
(A + B + C)
1
Number of visits
8,000
26,000
8,600
42,600
2
Direct materials (etc.)
$40,000
$50,000
$65,000
$155,000
3
Direct labor
$100,000
$120,000
$280,000
$500,000…
Tom uses his computer to calculate the following regression formula:Weekly total costs = $18,791 + ($19.97 * Number of orders per week) Draw the regression line on your graph. Use your graph to evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance of the independent variable. Is the cost function estimated using the high-low method a close approximation of the cost function estimated using the regression method? Explain briefly.
Chapter 10 Solutions
COST ACCOUNTING
Ch. 10 - What two assumptions are frequently made when...Ch. 10 - Describe three alternative linear cost functions.Ch. 10 - What is the difference between a linear and a...Ch. 10 - High correlation between two variables means that...Ch. 10 - Name four approaches to estimating a cost...Ch. 10 - Describe the conference method for estimating a...Ch. 10 - Describe the account analysis method for...Ch. 10 - List the six steps in estimating a cost function...Ch. 10 - When using the high-low method, should you base...Ch. 10 - Describe three criteria for evaluating cost...
Ch. 10 - Define learning curve. Outline two models that can...Ch. 10 - Discuss four frequently encountered problems when...Ch. 10 - Prob. 10.13QCh. 10 - All the independent variables in a cost function...Ch. 10 - Multicollinearity exists when the dependent...Ch. 10 - HL Co. uses the high-low method to derive a total...Ch. 10 - A firm uses simple linear regression to forecast...Ch. 10 - In regression analysis, the coefficient of...Ch. 10 - A regression equation is set up, where the...Ch. 10 - What would be the approximate value of the...Ch. 10 - Estimating a cost function. The controller of the...Ch. 10 - Identifying variable-, fixed-, and mixed-cost...Ch. 10 - Various cost-behavior patterns. (CPA, adapted)....Ch. 10 - Matching graphs with descriptions of cost and...Ch. 10 - Account analysis, high-low. Stein Corporation...Ch. 10 - Account analysis method. Gower, Inc., a...Ch. 10 - Prob. 10.27ECh. 10 - Estimating a cost function, high-low method. Lacy...Ch. 10 - Linear cost approximation. Dr. Young, of Young and...Ch. 10 - Cost-volume-profit and regression analysis....Ch. 10 - Regression analysis, service company. (CMA,...Ch. 10 - High-low, regression. May Blackwell is the new...Ch. 10 - Learning curve, cumulative average-time learning...Ch. 10 - Learning curve, incremental unit-time learning...Ch. 10 - High-low method. Wayne Mueller financial analyst...Ch. 10 - High-low method and regression analysis. Market...Ch. 10 - High-low method; regression analysis. (CIMA,...Ch. 10 - Regression, activity-based costing, choosing cost...Ch. 10 - Interpreting regression results. Spirit...Ch. 10 - Cost estimation, cumulative average-time learning...Ch. 10 - Cost estimation, incremental unit-time learning...Ch. 10 - Regression; choosing among models. Apollo Hospital...Ch. 10 - Multiple regression (continuation of 10-42). After...Ch. 10 - Cost estimation. Hankuk Electronics started...Ch. 10 - Prob. 10.45PCh. 10 - Interpreting regression results, matching time...Ch. 10 - Purchasing department cost drivers, activity-based...Ch. 10 - Purchasing department cost drivers, multiple...
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