• Home
  • Textbooks
  • Managerial Accounting - Decision Making and Motivating Performance
  • Determining How Costs Behave

Managerial Accounting - Decision Making and Motivating Performance

Srikant M. Datar, Madhav V. Rajan

Chapter 8

Determining How Costs Behave - all with Video Answers

Educators


Chapter Questions

03:34

Problem 1

What is the difference between a linear and a nonlinear cost function? Give an example of each type of cost function.

Ameer Said
Ameer Said
Numerade Educator
02:31

Problem 2

"A cost can be variable or fixed depending on the time horizon." Do you agree? Explain.

Ameer Said
Ameer Said
Numerade Educator
01:14

Problem 3

"High correlation between two variables means that one is the cause and the other is the effect." Do you agree? Explain.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
02:33

Problem 4

Describe the conference method for estimating a cost function. What are two advantages of this method?

Ameer Said
Ameer Said
Numerade Educator
01:34

Problem 5

Describe the account analysis method for estimating a cost function.

Ameer Said
Ameer Said
Numerade Educator
00:56

Problem 6

When using the high-low method, should you base the high and low observations on the dependent variable or on the cost driver?

Ameer Said
Ameer Said
Numerade Educator
01:38

Problem 7

Describe three criteria for evaluating cost functions and choosing cost drivers.

Ameer Said
Ameer Said
Numerade Educator

Problem 8

Why might a manager prefer the regression analysis method over the high-low method?

Check back soon!
05:33

Problem 9

Discuss four frequently encountered problems when collecting cost data on variables included in a cost function.

Ameer Said
Ameer Said
Numerade Educator
01:16

Problem 10

"All the independent variables in a cost function estimated with regression analysis are cost drivers." Do you agree? Explain.

Ameer Said
Ameer Said
Numerade Educator
21:39

Problem 11

Estimating a cost function. The controller of the Dorsey Company wants you to estimate a cost function from the following two observations in a general ledger account called Maintenance:$$
\begin{array}{l|c|c}
\hline \text { Month } & \text { Machine-Hours } & \text { Maintenance Costs Incurred } \\
\hline \text { January } & 8,000 & \$ 4,200 \\
\text { February } & 12,000 & 5,600 \\
\hline
\end{array}
$$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:29

Problem 12

Identifying variable-, fixed-, and mixed-cost functions. The Rolling Hills Corporation operates car rental agencies at more than 20 airports. Customers can choose from one of three contracts for car rentals of one day or less:
- Contract 1: $$\$ 50$$ for the day
- Contract $$2: \$ 30$$ for the day plus $$\$ 0.20$$ per mile traveled
- Contract 3: $$\$ 1$$ per mile traveled

Victor Salazar
Victor Salazar
Numerade Educator
08:16

Problem 13

Various cost-behavior patterns. (CPA, adapted) Select the graph that matches the numbered manufacturing cost data (requirements 1-9). Indicate by letter which graph biest fits the situation or item described.
(TABLE CAN'T COPY)
The vertical axes of the graphs represent total cost, and the horizontal axes represent units produced during a calendar year. In each case, the zero point of dollars and production is at the intersection of the two axes. The graphs may be used more than once.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
08:16

Problem 14

Matching graphs with descriptions of cost and revenue behavior. (D. Green, adapted) Given here are a number of graphs.
(TABLE CAN'T COPY)
The horizontal axis represents the units produced over the year, and the vertical axis represents total cost or revenues. Indicate by number which graph best fits the situation or item described (a-h). Some graphs may be used more than once; some may not apply to any of the situations.
a. Direct material costs
b. Supervisors' salaries for one shift and two shifts
c. A cost-volume-profit graph
d. Mixed costs-for example, car rental fixed charge plus a rate per mile driven
e. Depreciation of plant, computed on a straight-line basis
f. Data supporting the use of a variable-cost rate, such as manufacturing labor cost of $$\$ 14$$ per unit produced
g. Incentive bonus plan that pays managers $$\$ 0.10$$ for every unit produced above some level of production
h. Interest expense on $$\$ 2$$ million borrowed at a fixed rate of interest

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 15

Account analysis method. Henley operates a mobile car detailing service. Henley travels to a customer's home or place of business to wash and detail their car. Since many locations are remote, Henley's trucks carry water to the location where the car will be washed. Typically, only one car is washed and detailed per location. Henley serviced 60,000 cars in 2012. Henley reports the following costs for 2012:
(TABLE CAN'T COPY)

Check back soon!

Problem 16

Account analysis, high-low method. Highland Exports wants to find an equation to estimate monthly utility costs. Highland Exports has been in business for 1 year and has collected the following cost data for utilities:
(TABLE CAN'T COPY)

Check back soon!
04:42

Problem 17

Account analysis method. Gorham, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2012.
(TABLE CAN'T COPY)
Gorham, Inc., produced 72,500 units of product in 2012. Gorham's management is estimating costs for 2013 on the basis of 2012 numbers. The following additional information is available for 2013.
a. Direct materials prices in 2013 are expected to increase by $10 \%$ compared with 2012.
b. Under the terms of the labor contract, direct manufacturing labor wage rates are expected to increase by $5 \%$ in 2013 compared with 2012.
c. Power rates and wage rates for supervision, materials handing, and maintenance are not expected to change from 2012 to 2013.
d. Depreciation costs are expected to increase by $8 \%$, and rent, property taxes, and administration costs are expected to increase by $7 \%$.
e. Gorham expects to manufacture and sell 82,500 units in 2013.
1. Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2013. Estimate total manufacturing costs for 2013.
2. Calculate Gorham's total manufacturing cost per unit in 2012, and estimate total manufacturing cost per unit in 2013.
3. How can you obtain better estimates of fixed and variable costs? Why would these better estimates be useful to Gorham?

Akash M
Akash M
Numerade Educator
01:19

Problem 18

Estimating a cost function, high-low method. Rapp Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its seven helicopters makes between 1,300 and 2,300 round-trips per year. The records indicate that a helicopter that has made 1,300 round-trips in the year incurs an average operating cost of $$\$ 600$$ per round-trip, and one that has made 2,300 round-trips in the year incurs an average operating cost of $$\$ 450$$ per round-trip.

Sheryl Ezze
Sheryl Ezze
Numerade Educator
13:26

Problem 19

Estimating a cost function, high-low method. Sue North is examining customer-service costs in the southern region of Capitol Products. Capitol Products has more than 200 separate electrical products that it sells with a 6 -month guarantee of full repair or replacement with a new product. When a customer returns a product, a service report is prepared. This service report inctudes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are:$$
\begin{array}{c|c|c}
\hline \text { Weak } & \text { Customer-Service Department Costs } & \text { Number of Service Reports } \\
\hline 1 & \$ 13,700 & 190 \\
2 & 20,900 & 275 \\
3 & 13,000 & 115 \\
4 & 18,800 & 395 \\
5 & 14,000 & 265 \\
6 & 21,500 & 455 \\
7 & 16,900 & 340 \\
8 & 21,000 & 305 \\
\hline
\end{array}
$$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 20

Linear cost approximation. Bill Hide, managing partner of the law firm Hide \& Associates, is examining how secretarial support costs behave with changes in monthly professional labor-hours billed to clients. Assume the following historical data:$$
\begin{array}{|c|c|}
\hline \text { Total Secretarial Suppont Costs } & \text { Professional Labor-Hours Billed to Clients } \\
\hline \$ 35,000 & 2,000 \\
38,000 & 3,000 \\
39,500 & 4,000 \\
49,000 & 5,000 \\
52,000 & 6,500 \\
58,000 & 7,500 \\
\hline
\end{array}
$$

Check back soon!
10:23

Problem 21

Cost-volume-profit and regression analysis. Husker Corporation manufactures a garden tractor for residential use. Husker currently manufactures the wheel assembly for the tractors. During 2012, Husker made 2,500 wheel assemblies at a total cost of $$\$ 325,000$$. Axel Corporation has offered to supply as many wheel assemblies as Husker wants at a cost of $$\$ 125$$ per assembly. Husker anticipates needing 3,000 wheel assemblies each year for the next few years.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
00:01

Problem 22

Regression analysis, service company. (CMA, adapted) Sara Nye owns a party-planning company that provides planning as well as food and beverages. For a standard party, the cost on a per-person basis is as follows.$$
\begin{array}{lr}
\text { Food and beverages } & \$ 20.00 \\
\text { Labor }(0.5 \text { hour } \times \$ 15 \text { per hour) } & 7.50 \\
\text { Overhead }(0.5 \text { hour } \times \$ 12.50 \text { per hour }) & 6.25 \\
\text { Total cost per person } & \$ 33.75 \\
\hline
\end{array}
$$
Sara is quite certain about her estimates of the food, beverage, and labor costs but is not as comfortable with the overhead estimate. The overhead estimate was based on the actual data for the past 12 months, which are presented here. These data indicate that overhead costs vary with the direct labor-hours used. The $$\$ 12.50$$ estimate was determined by dividing total overhead costs for the 12 months by total labor-hours.

$$
\begin{array}{l|c|c|}
\hline \text { Month } & \text { Lahor-Hours } & \text { Overhead C05ts } \\
\hline \text { January } & 2,100 & \$ 48,000 \\
\text { February } & 2,400 & 54,500 \\
\text { March } & 3,800 & 52,500 \\
\text { April } & 4,900 & 62,500 \\
\text { May } & 7,500 & 78,500 \\
\text { June } & 9,300 & 83,000 \\
\text { July } & 8,900 & 84,000 \\
\text { August } & 5,800 & 71,500 \\
\text { September } & 5,200 & 63,000 \\
\text { October } & 4,700 & 63,000 \\
\text { November } & 3,240 & 58,000 \\
\text { December } & \underline{5,200} & 69,500 \\
\text { Total } & \underline{63,040} & \underline{\$ 788,000} \\
\hline
\end{array}
$$Sara has recently become aware of regression analysis. She estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable:
$$
y=\$ 39,826+\$ 4.92 X
$$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 23

High-low, regression. Thom Betow is the new manager of the materials storeroom for Manning Industries. Thom has been asked to estimate future monthly purchase costs for partt18, used in two of Manning's products. Thom has purchase cost and quantity data for the past 9 months as follows.$$
\begin{array}{l|c|c}
\hline \text { Month } & \text { Cost of Purchase } & \text { Quantity Purchased } \\
\hline \text { January } & \$ 13,950 & 3,490 \text { parts } \\
\text { February } & 11,600 & 2,480 \\
\text { March } & 15,200 & 3,600 \\
\text { April } & 13,100 & 3,250 \\
\text { May } & 11,800 & 2,390 \\
\text { June } & 12,750 & 2,780 \\
\text { July } & 12,350 & 2,970 \\
\text { August } & 10,100 & 1,900 \\
\text { September } & 13,400 & 3,050 \\
\hline
\end{array}
$$
Estimated monthly purchases for this part based on expected demand of the two products for the rest of the year are as follows.
$$
\begin{array}{l|c}
\hline \text { Month } & \text { Purchase Quantity Expected } \\
\hline \text { October } & 2,750 \text { parts } \\
\text { November } & 3,260 \\
\text { December } & 2,610 \\
\hline
\end{array}
$$

Check back soon!
10:23

Problem 24

Cost estimation, pricing decisions. GottaRun is a local company that customprints tech running shirts for organized racing events. The company has been in busintess for 2 years. Normal demand for the tech running shirts is approximately 600 shirts per event. On average, there are two events per month. The company has the following direct costs per shirt:$$
\begin{array}{ll}
\text { Direct material (tech shirts) } & \$ 5.00 \\
\text { Direct labor (jrinting) } & \$ 1.00 \\
\text { Direct labor (design) } & \underline{\$ 2.50} \\
\text { Total direct costs } & \$ 8.50
\end{array}
$$
The company has historically estimated selling price based on the direct cost of providing the tech shirts. Prices reflected a $40 \%$ desired profit margin above direct costs. Recently, GottaRun has experienced lower-than-normal profits and suspects that the prices it is charging are not covering all costs (direct and indirect) of providing the tech shirts. Indirect costs of the company include depreciation on the printing machines and utilities. The following data from the most recent year relate to these indirect costs:$$
\begin{array}{l|c|c|c|}
\hline \text { Month } & \text { Depreciation } & \text { Tech Shirts } & \text { Utilities } \\
\hline \text { January } & \$ 400 & 650 & \$ 1,990 \\
\text { February } & \$ 400 & 780 & \$ 1,870 \\
\text { March } & \$ 400 & 980 & \$ 1,890 \\
\text { April } & \$ 400 & 1,450 & \$ 2,640 \\
\text { May } & \$ 400 & 1,210 & \$ 2,340 \\
\text { June } & \$ 400 & 1,400 & \$ 3,390 \\
\text { July } & \$ 400 & 1,580 & \$ 3,480 \\
\text { August } & \$ 400 & 1,610 & \$ 3,560 \\
\text { September } & \$ 400 & 1,320 & \$ 2,780 \\
\text { October } & \$ 400 & 1,220 & \$ 2,750 \\
\text { November } & \$ 400 & 860 & \$ 2,280 \\
\text { December } & \$ 400 & 790 & \$ 2,150 \\
\hline
\end{array}
$$
The management accountant estimates the following regression equation with utilities as the dependent variable and the number of tech shirts as the independent variable:
$$
y=\$ 689+\$ 1.65 X
$$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 25

Equipment replacement and regression analysis. Brightlite Company uses a special machine to manufacture streetlights. It currently produces 500 streetlights per month at a total cost of $$\$ 68,000$$. Ergo, Inc., has been pressuring Brightlite Company to purchase as many streetlights as it needs from Ergo at a cost of $$\$ 130$$ per light.

Check back soon!
05:13

Problem 26

High-low method. Ken Howard, financial analyst at QTY Corporation, is examining the behavior of quarterly maintenance costs for budgeting purposes. Howard collects the following data on machinehours worked and maintenance costs for the past 12 quarters.$$
\begin{array}{|c|c|c|}
\hline \text { Quarter } & \text { Machine-Hours } & \text { Maintenance Costs } \\
\hline 1 & 75,000 & \$ 195,000 \\
2 & 95,000 & 230,000 \\
3 & 85,000 & 210,000 \\
4 & 105,000 & 250,000 \\
5 & 70,000 & 180,000 \\
6 & 90,000 & 225,000 \\
7 & 80,000 & 205,000 \\
8 & 100,000 & 245,000 \\
9 & 80,000 & 200,000 \\
10 & 100,000 & 235,000 \\
11 & 90,000 & 190,000 \\
12 & 130,000 & 285,000 \\
\hline
\end{array}
$$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 27

High-low method and regression analysis. True Orchard, a cooperative of organic family-owned farms outside of Portland, Oregon, has recently started a fresh produce club to provide support to the group's member farms and to promote the benefits of eating organic, locally produced food to the nearby suburban community. Families pay a seasonal membership fee of $$\$ 50$$, and place their orders a week in advance for a price of $$\$ 41$$ per week. In turn, True Harvest delivers fresh-picked seasonal local produce to several neighborhood distribution points. Eight hundred families joined the club for the first season, but the number of orders varied from week to week.

Sam Young has run the produce club for the first 10-week season. Before becoming a farmer, Sam had been a business major in college, and he remembers a few things about cost analysis. In planning for next year, he wants to know how many orders will be needed each week for the club to break even, but first he must estimate the club's fixed and variable costs. He has collected the following data over the club's first 10 weeks of operation:$$
\begin{array}{c|c|c|}
\hline \text { Week } & \text { Number of Orders per Week } & \text { Weekly Total Costs } \\
\hline 1 & 344 & \$ 17,580 \\
2 & 380 & 20,560 \\
3 & 420 & 21,980 \\
4 & 445 & 22,350 \\
5 & 415 & 22,350 \\
6 & 490 & 24,550 \\
7 & 460 & 23,780 \\
8 & 457 & 22,690 \\
9 & 532 & 25,400 \\
10 & 515 & 24,900 \\
\hline
\end{array}
$$

Check back soon!
00:01

Problem 28

High-low method; regression analysis. (CIMA, adapted) Tina Reese, financial manager at the local Players Theater, is checking to see if there is any relationship between newspaper advertising and sales revenues at the theater. She obtains the following data for the past 10 months:$$
\begin{array}{|l|c|c|}
\hline \text { Month } & \text { Revenues } & \text { Advertising Costs } \\
\hline \text { March } & \$ 28,000 & \$ 2,000 \\
\text { April } & 73,000 & 3,000 \\
\text { May } & 58,000 & 1,500 \\
\text { June } & 65,000 & 3,500 \\
\text { July } & 55,000 & 1,000 \\
\hline
\end{array}
$$$$
\begin{array}{l|c|c}
\hline \text { Month } & \text { Revenues } & \text { Advertising Costs } \\
\hline \text { August } & 65,000 & 2,000 \\
\text { September } & 45,000 & 1,500 \\
\text { October } & 85,000 & 4,000 \\
\text { November } & 55,000 & 2,300 \\
\text { December } & 60,000 & 2,500 \\
\hline
\end{array}
$$
She estimates the following regression equation:
$$
\text { Monthly revenues }=\$ 33,818+(\$ 10.765 \times \text { Advertising costs })
$$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 29

Regression, activity-based costing, choosing cost drivers. Bayland Manufacturing has been using activity-based costing to determine the cost of product B-190. One of the activities, "Inspection," occurs just before the product is finished. Bayland inspects every 10 th unit and has been using "number of units inspected" as the cost driver for inspection costs. A significant component of inspection costs is the cost of the test kit used in each inspection.

Meena Ley, the line manager, is wondering if inspection labor-hours might be a better cost driver for inspection costs. Meena gathers information for weekly inspection costs, units inspected, and inspection labor-hours as follows.$$
\begin{array}{c|c|c|c}
\hline \text { Week } & \text { Units Inspected } & \text { Inspection Labor-Hours } & \text { Inspection Costs } \\
\hline 1 & 1,700 & 190 & \$ 4,000 \\
2 & 700 & 80 & 2,100 \\
3 & 2,100 & 230 & 4,900 \\
4 & 2,700 & 240 & 6,300 \\
5 & 2,300 & 210 & 5,700 \\
6 & 1,000 & 70 & 3,100 \\
7 & 1,200 & 130 & 3,200 \\
\hline
\end{array}
$$
Meena runs regressions on each of the possible cost drivers and estimates these cost functions:
$$
\begin{aligned}
& \text { Inspection costs }=\$ 772+(\$ 2.04 \times \text { Number of units inspected }) \\
& \text { Inspection costs }=\$ 988+(\$ 19.47 \times \text { Inspection labor-hours) }
\end{aligned}
$$

Check back soon!

Problem 30

Interpreting regression results, matching time periods. Bender, Inc., produces industrial blenders for smoothie and health food shops. It has four peak periods, each lasting 2 months, for manufacturing the merchandise suited for spring, summer, fall, and winter. In the off-peak periods, Bender schedules equipment maintenance. Bender's controller, Gina Hood, wants to understand the drivers of equipment maintenance costs.
$$
\begin{aligned}
&\text { The data collected is as follows. }\\
&\begin{array}{l|c|r|}
\hline \text { Month } & \text { Machine-Hours } & \text { Maintenance Costs } \\
\hline \text { January } & 5,150 & \$ 1,250 \\
\text { February } & 4,600 & 2,150 \\
\text { March } & 1,120 & 13,100 \\
\text { April } & 5,360 & 1,650 \\
\text { May } & 5,650 & 2,680 \\
\text { June } & 1,750 & 15,100 \\
\text { July } & 7,250 & 1,900 \\
\text { August } & 6,050 & 2,690 \\
\text { September } & 1,950 & 15,400 \\
\text { October } & 6,200 & 1,750 \\
\text { November } & 5,800 & 2,850 \\
\text { December } & 1,450 & 14,900 \\
\hline
\end{array}
\end{aligned}
$$
A regression analysis of 1 year of monthly data yields the following relationships:
$$
\text { Maintenance costs }=\$ 17,983-(\$ 2,683 \times \text { Number of machine-hours })
$$

Upon examining the results, Hood comments, "So, all I have to do to reduce maintenance costs is run my machines longer? This is hard to believe, but numbers don't lie! I would have guessed just the opposite."

Check back soon!

Problem 31

Regression, activity-based costing, customer costs. Soaring, Inc., makes paragliders, most of which are custom-designed for the customer. Customer costs, the costs incurred to support customers, are a major component of the company's income statement. The owners of Soaring would like to have a more accurate picture of what is driving customer costs and have collected the following data related to paraglider sales:
$$
\begin{array}{c|c|c|c}
\hline \text { Month } & \text { Customer Costs } & \text { Number of Customer Orders } & \text { Number of Design-Hours } \\
\hline 1 & \$ 4,500 & 50 & 190 \\
2 & 2,600 & 20 & 80 \\
3 & 5,300 & 75 & 230 \\
4 & 6,550 & 60 & 240 \\
5 & 5,850 & 55 & 210 \\
6 & 3,370 & 10 & 70 \\
7 & 3,480 & 45 & 130 \\
\hline
\end{array}
$$
The management accountant runs regressions on each of the possible cost drivers and estimates these cost functions:
$$
\begin{aligned}
& \text { Customer costs }=\$ 1,391+(\$ 19.057 \times \text { Number of design-hours }) \\
& \text { Customer costs }=\$ 2,267+(\$ 50.097 \times \text { Number of customer orders })
\end{aligned}
$$

Check back soon!

Problem 32

Regression, choosing best cost driver. Heywood Game Systems produces a variety of video game consoles. The company has been using activity-based costing to determine the cost of the "Ulitimate" game block. Heywood incurs setup costs for each batch of consoles it produces. Currently the company is using the number of setups as the cost driver for setup costs. Jerry Crofton has been hired recently to assist in the production department. He frequently boasts about the managerial accounting classes he has taken as a student. He thinks that setup hours may be a better driver for setup costs. Heywood has collected the following data related to setting up the machines for production of the game consoles:$$
\begin{array}{|c|c|c|c|}
\hline \text { Month } & \text { Number of Setups } & \text { Number of Setup Hours } & \text { Setup Costs } \\
\hline 1 & 18 & 36 & \$ 520 \\
2 & 20 & 45 & 620 \\
3 & 22 & 40 & 530 \\
4 & 25 & 42 & 535 \\
5 & 17 & 35 & 500 \\
6 & 15 & 26 & 415 \\
7 & 14 & 30 & 460 \\
8 & 13 & 28 & 464 \\
\hline
\end{array}
$$
Jerry runs regressions on each of the possible cost drivers and estimates these cost functions:
$$
\begin{aligned}
& \text { Setup costs }=\$ 327.25+(\$ 9.83 \times \text { Number of setups }) \\
& \text { Setup costs }=\$ 212.89+(\$ 8.26 \times \text { Setup hours })
\end{aligned}
$$

Check back soon!

Problem 33

Interpreting regression results, data shifts. FunSkis Company manu-
factures snow and water skis. Snow skis are the primary product for the company. However, to keep part of the facility operating during the offseason for snow skiing, the company manufactures water skis during the offseason months. The company produces snow skis from July through January and water skis from February through June. During the months of February through June, the company significantly reduces the labor force and approximately two-thirds of the production equipment sits idle. FunSkis would like to better predict overhead cost and has chosen machine-hours as the cost driver for overhead cost. The following data has been gathered for the most recent year:$$
\begin{array}{|l|c|r|}
\hline \text { Month } & \text { Number of Machine-Hours } & \text { Overhead Costs } \\
\hline \text { January } & 390 & \$ 4,520 \\
\text { February } & 289 & 1,110 \\
\text { March } & 268 & 1,100 \\
\text { April } & 215 & 950 \\
\text { May } & 190 & 820 \\
\text { June } & 245 & 990 \\
\hline
\end{array}
$$
$$
\begin{array}{l|c|c}
\hline \text { Month } & \text { Number of Machine-Hours } & \text { Overhead Costs } \\
\hline \text { July } & 385 & 4,490 \\
\text { August } & 442 & 4,760 \\
\text { September } & 480 & 4,780 \\
\text { October } & 510 & 4,870 \\
\text { November } & 458 & 4,790 \\
\text { December } & 418 & 4,600 \\
\hline
\end{array}
$$
A regression analysis of 1 year of monthly data yields the following relationships:
$$
\text { Overhead costs }=(\$ 16.347 \times \text { Number of machine-hours })-\$ 2,695.80
$$

Check back soon!

Problem 34

Interpreting regression results, matching time periods, ethic
Jayne Barbour is working as a summer intern at Mode, a trendy store specializing in clothing for twer somethings. Jayne has been working closely with her cousin, Gail Hubbard, who plans promotions for Mc The store has only been in business for 10 months, and Valerie Parker, the store's owner, has been unsure of the effectiveness of the store's advertising. Wanting to impress Valerie with the regression analysis skills she acquired in a cost accounting course the previous semester, Jayne decides to prepare an analysis of the effect of advertising on revenues. Jayne performs a regression analysis, comparing each month's advertising expense with that month's revenue, and obtains the following formula:
$$
\begin{aligned}
\text { Revenue } & =\$ 47,801-(1.92 \times \text { Advertising expense }) \\
r^2 & =0.43 ;
\end{aligned}
$$

Check back soon!