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Least Squares Regression Analysis The management of Digger Inc., is trying to develop a cost formula for its major manufacturing overhead activities. Digger's manufacturing
Least Squares Regression Analysis The management of Digger Inc., is trying to develop a cost formula for its major manufacturing overhead activities. Digger's manufacturing process is highly automated and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed. The costs must be separated into their fixed and variable components so that the cost behavior of the power usage activity can be better understood. Analysts have determined that machine hours drive power usage; thus machine hours are the cost driver for power costs. Nine months of data have been collected and are presented in the chart below: Machine Period Hours Power Cost January 36,000 $45,000 February 45,000 $60,300 March 54,000 $67,500 April 39,600 $53,064 May 37,800 $47,250 June 32,400 $43,416 43,200 $54,000 50,400 $67,536 $58,500 July August September 46,800 Note: For the following requirements, round the variable cost per unit to the nearest cent and the total fixed cost to the nearest dollar. Required a. Use the high and low points to estimate a power cost formula. Power cost $ 7,290 x + ($ 1.115 xx machine hours)
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