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Question 1 (23 marks) As part of his job as cost analyst, Max Thompson collected the following information concerning the operations of the Machining Department:
Question 1 (23 marks) As part of his job as cost analyst, Max Thompson collected the following information concerning the operations of the Machining Department: Observation January February March April May June Machine-hours Total Operating Costs 4,700 $43,800 5,060 $45,270 4,180 $42.535 4,500 $43,600 4,250 $42.890 5,120 $45.825 Required (a) Use the high-low method to determine the estimating cost function with machine-hours as the cost driver. (6 marks) (b) If July's estimated machine-hours are 4,500, calculate the total estimated operating costs of the Machining Department using the cost function in (a)? (3 marks) (c) Max has used least squares regression analysis to obtain the following output: SUMMARY OUTPUT R Square Regression Statistics Multiple R 0.98 0.97 Adjusted R Square 0.97 Standard Error 256.66 Observations 6 Intercept Machine-hours Coefficients 29035 3.2258 Standard Error 1339.51 0.2881 Stat P-value Lower 95% 21.676 2.68E-05 25316.1997 11.196 0.000362 2.4258 Upper 95% 32754.36 4.025689 (0) Write the linear cost function. (3 marks) (ii) Plot the relationship between total operating costs and machine hours. Draw the regression line. (5 marks) (iii) Evaluate the regression line using any two of the criteria, including economic plausibility, goodness of fit and slope of regression line. (6 marks)
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