Unformatted text preview: sion, coefficient of determination (r2) Objective: A AACSB: Analytical skills 174) Schotte packaging department. The most recent results of the two regressions are as follows: Manufact
uring Machinehours:
Company Variable
Coefficient
Standard Error tValue uses two Constant
$748.30
$341.20
2.19
different Independent Variable
$52.90
$35.20
1.50 independe
nt r2 = 0.33 variables (machine Number of packages:
hours and Variable
Coefficient
Standard Error tValue number of Constant
$242.90
$75.04
3.24
packages) Independent Variable
$5.60
$2.00
2.80 in two different r2 = 0.73 equations to evaluate Required: costs of a. What are the estimating equations for each cost driver?
the b. Which cost driver is best and why? Answer: a. Machinehours
y = $748.30 +
$52.90X
Number of packages
y = $242.90 +
$5.60X b. Machinehours has a low r2 which implies that a small proportion of the variance is explained by machinehours, thereby making it less attractive than number of packages as a cost predictor. Also, for the independent variable, number of packages, the tvalue of 2.80 indicates that a relationship exists between the independent and dependent variables. For machinehours, the tvalue (1.50) is below 2.00, indicating that the coefficient is not significantly different from zero and that there may not be a relationship between the independent and dependent variables. The tvalues of the constant terms (g) for both drivers is greater than 2.00, therefore, there is no distinguishing characteristic between the constants. Diff: 2 Terms: cost estimation, simple regression, coefficient of determination (r2) Objective: A AACSB: Analytical skills 175) What are assumptions behind a simple linear cost function? Briefly explain the three ways that a linear cost function may behave? the two Answer: The two usual assumptions behind a simple linear cost function are:
1) Variations in the level of a single activity (the cost driver) explain the variations in the related total costs; and
2) Cost behavior is approximated by a linear cost function within the...
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This note was uploaded on 12/12/2012 for the course SB 305 taught by Professor Brown during the Spring '08 term at Clarkson University .
 Spring '08
 BROWN

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