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Unformatted text preview: ppears to be reasonably small. This indicates that advertising costs are related to restaurant revenues. Slope of regression line. The slope o f the regressio n line appears to be relat ively steep. Given the small scatter of the observat ions around the line, the steep slope indicates that, on average, restaurant revenues increase wit h newspaper advertising. 1022 3. The highlow method would est imate the cost function as fo llows: Advertising Costs Highest observat ion of cost driver $4,000 Lowest observat ion of cost driver 1,000 Difference $3,000 Revenues = a + (b ´ advertising costs) Slope coefficient (b) Constant (a) = $25,000 = 8.333 $3,000 Revenues $80,000 55,000 $25,000 = $80,000 - ($4,000 ´ 8.333) = $80,000 - $33,332 = $46,668 or Constant (a) = $55,000 - ($1,000 ´ 8.333) = $55,000 - $8,333 = $46,667 Revenues 4. = $46,667 + (8.333 ´ Advertising costs) The increase in revenues for each $1,000 spent on advert ising wit hin the relevant range is a. Using the regressio n equat ion, 8.723 ´ $1,000 = $8,723 b. Using the highlow equat ion, 8.333 ´ $1,000 = $8,333 The highlow equat ion does fairly well in estimat ing the relat ionship between advertising costs and revenues. However, Martinez should use the regressio n equation because it uses informat ion fro m all observat ions. The highlow method, on the other hand, relies only on the observat ions that have the highest and lowest values o f the cost driver and these observat ions are generally not representative of all the data. 1023 1034 (30 min.) Regression, activitybased costing, choosing cost drivers. 1. Both number of units inspected and inspect ion laborhours are plausible cost drivers for inspection costs. The number of units inspected is likely related to testkit usage, which is a significant component of inspection costs. Inspection laborhours are a plausible cost driver if labor hours vary per unit inspected, because costs would be a funct ion of how much time the inspectors spend on each unit. Th...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.
- Spring '10
- Cost Accounting