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Chap01_lecture_Part2

# 25patient day y 10000 125x total maintenance cost

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Unformatted text preview: 20 High-Low Method The VC per hour of VC maintenance maintenance is equal to the change in cost divided by the change in hours. \$2,400 = \$8.00/hour 300 21 High-Low Method Total FC = Total Cost – Total VC Total FC = \$9,800 – (\$8/hour × 800 hours) Total FC = \$9,800 – \$6,400 Total FC = \$3,400 22 High-Low Method The Cost Equation for Maintenance Y = \$3,400 + \$8.00X 23 Regression Method A method used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost. The goal of this method is to fit a straight line to the data that minimizes the minimizes sum of the squared errors. 24 Regression Method • Software can be used to fit a regression line through the data points. • The cost analysis objective is the same: Y = a + bX Regression also provides a statistic, called the R2, which is a measure of the goodness of fit of the regression line to the data points. 25 Regression Method R2 is the percentage of the variation in total cost explained by the activity. Y Total Cost 20 ** * *2 10 * ** * ** R varies from 0% to 100%, and the higher the percentage the better. 0 0 1 2 3 Activity 4 X 26...
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