Assume that you work for Wilma Manufacturing Company and have been asked to review the cost of delivery truck maintenance. The company president, Wilma Hudik, is dissatisfied with the accounting department’s reluctance to calculate the fixed and variable cost of truck maintenance as it pertains to the number of units produced in the factory.

The accounting department prepared the following scatter graph:

The accounting department personnel seem unable to use the graph to determine fixed and variable cost. The company president knows that regression analysis will provide mathematically accurate amounts for the fixed and variable truck maintenance cost, but no one in the accounting department seems to know how to do it.
Required: Prepare a short memo to the president that details the feasibility of using the scatter graph and regression analysis to determine the fixed and variable components of delivery truck maintenance relative to the amount of factory production. In addition, your memo should recommend an alternative approach that could be used to evaluate the cost and cost behavior of truck maintenance.

Transcribed Image Text:

A Delivery Truck Maintenance Cost Number of Units Produced in the Factory X