Regression Analysis of Accounts Payable Cost and Invoice Processing

Palmerwerks Global Manufacturing (PGM) is trying to budget for its Accounts Payable (AP) cost for 2015.

• Exhibit 1 shows AP cost for every month in 2014 and associated invoice processing activity for that month.
• Exhibit 2 at the end of the problem presents a regression analysis of the data (where Y=AP cost and X=invoices processed).

Exhibit 1. AP Cost and Invoice Processing Activity Data.

Data by Month	Invoices Processed	2014 Accounts Payable Cost
January	125	$21,250
February	200	28,000
March	250	30,000
April	300	34,000
May	350	38,000
June	400	38,000
July	430	40,100
August	475	43,250
September	500	40,000
October	550	43,000
November	650	42,500
December	700	45,000

Requirement 1. Using the high low method, calculate the variable cost per unit and total fixed cost at PGM. (4 points)

Requirement 2. Using the printout of the results of a simple linear regression analysis below, please answer the following questions (a) through (c):

A. What percent of the variability in monthly AP cost is explained by invoice processing activity? (2 points)

B. Based on the regression analysis, what cost would be predicted for January 2013 if 800 invoices are processed? (3 points)

Exhibit 2. Regression Analysis of AP Cost and Invoices Processed.

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.925614023
R Square	0.85676132
Adjusted R Square	0.842437452
Standard Error	2874.663478
Observations	12
ANOVA	df	SS	MS	F	Significance F
Regression	1	494,280,599	494,280,599	59.8	0.0000158
Residual	10	82,636,901	8,263,690
Total	11	576,917,500
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	21,277.68	2,186.78	9.73	0.00	16,405.24	26,150.13	16,405.24	26,150.13
X Variable 1	38.09	4.92	7.73	0.00	27.11	49.06	27.11	49.06