# 16_AdditionalStudyQuestions - ACC 333(Farrell Class 16 Fall...

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ACC 333 (Farrell) Class 16 Fall 2011 Page 1 of 10 Additional Study Questions Regression Analysis for Managerial Decision-Making 1. Activity Drivers Randy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months. Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities' costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R 2 of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R 2 of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a fifteen-month period and a regression analysis from this data are provided below: Inspection Cost Hours of Inspection Number of Batches 17,689 100 10 18,350 120 20 13,125 60 15 28,000 320 30 30,560 240 25 31,755 200 40 40,750 280 35 29,500 230 22 47,570 350 50 36,740 270 45 43,500 350 38 26,780 200 18 28,500 140 28 17,000 160 14 Regression Statistics Adjusted R Square 0.869143 Standard Error 3761.81 Observations 14 ANOVA df SS MS F P-Value Regression 2 1.25E+09 6.25E+08 44.1724979 <0.0001 Residual 11 1.56E+08 14151212 Total 13 1.41E+09 Standard Error t Stat P-value Intercept 5288.567 2745.219 1.926465 0.080267009 X Variable 1 55.82457 17.62139 3.168001 0.008950436 X Variable 2 428.6894 132.3149 3.239918 0.007875116

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ACC 333 (Farrell) Class 16 Fall 2011 Page 2 of 10 Required: (a) Calculate the cost formula for inspection costs using the two drivers, inspection hours, and number of batches. Are both activity drivers useful? What does the R 2 indicate about the formula? (b) Using the formula developed in Requirement (a), calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. (c) Using the formula developed in Requirement (a), calculate the inspection cost for the following two months. In which prediction should you have greater confidence? Why? ° Month A: Used 300 inspection hours and 30 batches. ° Month B: Used 450 inspection hours and 60 batches. 2. Weber Valley Regional Hospital Weber Valley Regional Hospital has collected data on all of its activities for the past sixteen months. Data for cardiac nursing care and output from various regression analyses using this data follow: Observation No. Month Cost Hours of Nursing Care Last year: 1 May 59,600 1,400 2 June 57,150 1,350 3 July 61,110 1,460 4 August 65,800 1,600 5S e p t e m b e r 69,500 1,700 6 October 64,250 1,550 7 November 52,000 1,200 8 December 66,000 1,600 This year: 9 January 83,000 1,800 10 February 66,550 1,330 11 March 79,500 1,700 12 April 76,000 1,600 13 May 68,500 1,400 14 June 73,150 1,550 15 July 73,175 1,505 16 August 66,150 1,290
ACC 333 (Farrell) Class 16 Fall 2011 Page 3 of 10 Regression output using all observations: Regression Statistics Adjusted R Square 0.574531 Standard Error 5311.289 Observations 16 ANOVA df SS MS F Regression 1 6E+08 6E+08 21.25519

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## This note was uploaded on 03/19/2012 for the course ACCACC 333 taught by Professor Anne during the Fall '11 term at Miami University.

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16_AdditionalStudyQuestions - ACC 333(Farrell Class 16 Fall...

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