Molina Company is a value-added computer reseller that specializes in providing services to small companies. The company owns and maintains several vehicles for use by its sales staff. All expenses of operating these vehicles have been entered into an automobile expense account on the company?s books. Along with this record of expenses, the company has also kept a careful record of the number of kilometres the vehicles have been driven each month.

The company?s records of kilometres driven and total vehicle expenses over the past 10 months are given below:

Molina Company?s president wants to know the cost of operating the fleet of vehicles in terms of the fixed monthly cost and the variable cost per kilometre driven.

Required:

1. Prepare a scattergraph using the data provided. Place cost on the vertical axis and activity (kilometres driven) on the horizontal axis. Fit a regression line to the plotted points by simple visual inspection.

2. By analyzing your scattergraph, estimate fixed cost per month and the variable cost per kilometre driven.

Transcribed Image Text:

Kilometres Month Driven (000) Total Cost January 4 $13,000 February 15,700 March 15,300 April 12 17,000 May 14,300 June 11 16,500 July 14 18,000 August 10 15,000 September 13 18,100 October 15 18,400