ADS was formed 30 years ago with a mandate to estbalish a public/private mail and parcel delivery system.By 20X5 ,ADS was handling close to 38 million pieces of mail and 29 millions kilogram of parcel per year .

ADS Delivery Services

20X5 Budget

(all figures in000 ,except rate)

	Letters	Express Delivery	Regular Delivery	Total
Volume (pieces)	40000
Volume (Kilograms)		2560	23094
Rates	$0.48	$2.10	$1.05
Total Revenue	19200	5376	24249	48825
Expenses
Sorting Labour	2051	788	6158	8997
Sorting Overhead	6310	1578	7888	15776
Delivery	7140	840	7522	15502
ADMINISTRATION	3426	342	3084	6852
Promotion	964	368	368	1700
Total Expenses	19891	3916	25020	48827
Surplus/Deficit	-691	1460	-771	-2

ADS Delivery Services

20X5 actual result

(all figures in000 ,except rate)

	Letters	Express Delivery	Regular Delivery	Total
Volume (pieces)	37800
Volume (Kilograms)		2310	26880
Rates	$0.48	$2.10	$1.05
Total Revenue	18144	4851	28224	51219
Expenses
Sorting Labour	2100	797	7168	10065
Sorting Overhead	6773	1693	8466	16932
Delivery	7508	998	9240	17746
ADMINISTRATION	3276	259	3017	6552
Promotion	1155	578	998	2731
Total Expenses	20812	4325	28889	54026
Surplus/Deficit	-2668	526	-665	-2807

Administration costs are allocated equally to letters and parcels. The amounts assigned to the two categories of parcels are based on the number of kilograms of each category handled.

Promotion costs are allocated based on advertising campaigns specific to each product.

Allocation of service department costs 20x5

	Maintenance	Janitorial	Letters	Express delivery	Regular delivery	total
Service department costs	$1310400	$2620800
Maintenance- machine hours		50	2800	225	400	3475
Janitorial-sq meter	500		1200	1650	1750	5100

QUESTION

Office administration costs: Review the summary printout of two Excel regression analyses: one that tests the correlation between administration employee hours and office administration costs and one that tests the correlation between documents used and office administration costs. Explain which activity driver is the better representation of cost behaviour. As a result of your analysis from parts i and ii, reallocate total service and administration costs to the three products. Be sure to split the office administration costs into variable and fixed portions based on your regression results. The fixed cost portion should be allocated among the services

Actual (20X5) and budgeted (20X6) activity

	Letters	Express delivery parcel	Regular delivery parcel	total
20X5 Employee hours(actual)	44704	36076	64220	145000
20X5 employee hours (budgeted)	47232	38116	67852	153200
20X5 documents (actual)	30000	15800	19300	65000
20X5 documents(budgeted)	32000	16500	19300	67800

The following summary outputs are the result of two regression analyses: one that tests the correlation between administration employee hours and office administration costs and one that tests the correlation between documents processed and office administration costs. The data consist of monthly observations from the 20X5 historical figures. Note that employees are responsible for assigning their hours worked to each of the operating departments.

EMPLOYEE HOURS

SUMMARY OUTPUT

Regression Statistics

Mulltiple R	0.152746636
R Square	0.262909112
Adjuted R Square	0.189200024
Standord Error	14138.08665
Observations	12

ANOVA

	Df	SS	MS
Regression	1	712961166.1	712961166.1
Residual	10	1998854942	199885494.2
Total	11	2711816108

	Coefficient	Standard error	T stat
Intercept	66029.25821	80781.93796	0.817376506
Cost per hour	12.60999242	6.676863954	1.888610059

EMPLOYEE DOCUMENTS

SUMMARY OUTPUT

Regression Statistics

Mulltiple R	0.939480348
R Square	0.882623324
Adjuted R Square	0.870885666
Standord Error	5641.84332
Observations	12

ANOVA

	Df	SS	MS
Regression	1	2393512148	2393512148
Residual	10	318303960.4	31830396.04
Total	11	2711816108

	Coefficient	Standard error	T stat
Intercept	35857.75419	17833.5769	2.010687726
Cost per document	33.70010692	3.886283529	8.671551283