Chapter 02 – Appendix A Least-Squares Regression Computations
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Chapter 02 Appendix A Least-Squares Regression Computations Answer Key
True / False Questions
1. In least-squares regression, independent variables are not included in the computations of
the slope and intercept.
2. Least-squares regression selects the values for the intercept and slope of a straight line that
minimize the sum of the squared errors.
3. When analyzing a mixed cost, you should always plot the data in a scattergraph, but it is
particularly important to check the data visually on a scattergraph when the R2 is very high.
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Multiple Choice Questions
4. Which of the following methods of analyzing mixed costs can be used to estimate an
equation for the mixed cost?
5. The least-squares regression method:
Chapter 02 – Appendix A Least-Squares Regression Computations
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6. The management of Ferry Corporation would like for you to analyze their repair costs,
which are listed below:
Management believes that repair cost is a mixed cost that depends on the number of machine-
hours. Using the least-squares regression method, the estimates of the variable and fixed
components of repair cost would be closest to:
Chapter 02 – Appendix A Least-Squares Regression Computations
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7. Moeller Inc.’s inspection costs are listed below:
Management believes that inspection cost is a mixed cost that depends on the number of units
produced. Using the least-squares regression method, the estimates of the variable and fixed
components of inspection cost would be closest to:
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8. Your boss would like you to estimate the fixed and variable components of a particular
cost. Actual data for this cost over four recent periods appear below.
Using the least-squares regression method, what is the cost formula for this cost?
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Descoteaux Inc.’s inspection costs are listed below:
Management believes that inspection cost is a mixed cost that depends on units produced.
9. Using the least-squares regression method, the estimate of the variable component of
inspection cost per unit produced is closest to:
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10. Using the least-squares regression method, the estimate of the fixed component of
inspection cost per month is closest to:
Carr Company reports the following data for the first six months of the year:
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11. Using the least-squares regression method, the estimated variable electrical cost per
machine hour is closest to:
12. Using the least-squares regression method, the estimated monthly fixed component of the
electrical cost is closest to:
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Gelrud Corporation’s recent utility costs are listed below:
Management believes that utility cost is a mixed cost that depends on machine-hours.
13. Using the least-squares regression method, the estimate of the variable component of
utility cost per machine-hour is closest to:
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14. Using the least-squares regression method, the estimate of the fixed component of utility
cost per month is closest to:
Recent maintenance costs of Prideaux Corporation are listed below:
Management believes that maintenance cost is a mixed cost that depends on machine-hours.
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15. Using the least-squares regression method, the estimate of the variable component of
maintenance cost per machine-hour is closest to:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: Application
Learning Objective: 02A-08 Analyze a mixed cost using a scattergraph plot and the least-squares regression method
Level: Medium
16. Using the least-squares regression method, the estimate of the fixed component of
maintenance cost per month is closest to:
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Essay Questions
17. The Stephens Leadership Center provides training seminars in personal development and
time management. The company is relatively new and management is seeking information
regarding the Center’s cost structure. The following information has been gathered since the
inception of the business in January of the current year:
Required:
a. Using the high-low method, estimate the variable cost per seminar and the total fixed cost
per month.
b. Using the least-squares method, estimate the variable cost per seminar and the total fixed
cost per month.
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Chapter 02 – Appendix A Least-Squares Regression Computations
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18. Dillenbeck Printing Corp., a book printer, has provided the following data:
Management believes that the press setup cost is a mixed cost that depends on the number of
titles printed. (A specific book that is to be printed is called a “title”. Typically, thousands of
copies will be printed of each title. Specific steps must be taken to setup the presses for
printing each title-for example, changing the printing plates. The costs of these steps are the
press setup costs.)
Required:
Estimate the variable cost per title printed and the fixed cost per month using the least-squares
regression method.
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Chapter 02 – Appendix A Least-Squares Regression Computations
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19. Below are cost and activity data for a particular cost over the last four periods. Your boss
has asked you to analyze this cost so that management will have a better understanding of
how this cost changes in response to changes in activity.
Required:
Using the least-squares regression method, estimate the cost formula for this cost.
The solution using Microsoft Excel functions is:
Variable cost = Slope = $3.94
Fixed cost = Intercept = $110.80
Therefore, the cost formula is $110.80 per period plus $3.94 per unit of activity or:
Y = $110.80 + $3.94X
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20. Executive Training, Inc., provides a personal development seminar that is popular with
many companies. The number of seminars offered over the last five months, along with the
total costs of offering these seminars, follows:
Required:
a. Using the high-low method, estimate the variable cost per seminar and the total fixed cost
per month.
b. Using the least-squares regression method, compute the variable cost per seminar and the
total fixed cost per month. (Round off to the nearest whole dollar.)
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Chapter 02 – Appendix A Least-Squares Regression Computations
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21. Galarneau Inc. maintains a call center to take orders, answer questions, and handle
complaints. The costs of the call center for a number of recent months are listed below:
Management believes that the cost of the call center is a mixed cost that depends on the
number of calls taken.
Required:
Estimate the variable cost per call and fixed cost per month using the least-squares regression
method.
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22. The management of Ferriman Corporation would like to better understand the behavior of
the company’s warranty costs. Those costs are listed below for a number of recent months:
Management believes that warranty cost is a mixed cost that depends on the number of
product returns.
Required: