BRIEF EXERCISE 6-3

Applying the Scattergraph Method [LO2 - CC10]

Oki Products, Ltd. has observed the following processing costs at various levels of activity over the past 10 months:

Month Units

Produced Processing

Cost 1 2,500 $28,000 2 11,000 52,000 3 15,000 59,000 4 5,500 38,000 5 9,000 47,000 6 8,500 52,000 7 7,500 44,000 8 7,000 41,000 9 11,500 52,000 10 6,000 41,000

Required:

1. need a scattergraph by plotting these data on a graph. Plot cost on the vertical axis and units produced on the horizontal axis. Fit a line to your plotted points by visual inspection.
2. What is the approximate monthly fixed cost? The approximate variable cost per unit processed? Show your computations.

BRIEF EXERCISE 6-4

Applying the Least-Squares Regression Method [LO2 - CC11]

Required:

Using the data in Brief Exercise 6-3, repeat part (2) using least-squares regression (using any spreadsheet software). Is units produced a reliable basis for estimating processing costs?