Account question

profileDee Redd
Findingthefixedandvariablecost_problem.xlsx

Small_Company

History of costs
Services provided Operating expenses
January 3,800 $57,800
February 3,200 $51,300
March 3,400 $52,250
April 3,300 $51,900
May 4,100 $56,400
June 3,500 $53,100

Required: 1. Find the cost equation for total cost: Total cost = Fixed Cost + Variable Cost*Activity 2. Predict the total cost for 4,000 services 3. Comment on the quality of the prediction. If you used a regression package like the 'Data Analysis' add-in, what was the R2 for the regression and what does that mean? Whether you used a regression package or not,were the actual costs for the months nearest 4,000 services about where they should be using the cost predictions? 4. If you had enough influence over the local economy that you could set prices, at what retail price would you set services if you wished to make $10,000 in a month where there were 4,000 services?

Slight sketch of how to solve

History of costs History of costs
Services provided Operating expenses Services provided Operating expenses a b
January 3,800 $57,800 X Y (X-Average X) (Y-Average Y) a x b a2
February 3,200 $51,300 January 3,800 $57,800 (3,800 - Average X) (57,800 - Average Y) multiply the two columns square the first column
March 3,400 $52,250 February 3,200 $51,300
April 3,300 $51,900 March 3,400 $52,250
May 4,100 $56,400 April 3,300 $51,900
June 3,500 $53,100 May 4,100 $56,400
June 3,500 $53,100
Average Ave(X) Ave(Y) Total = Sum of a x b Sum of a2
Results: Slope = Sum of a x b = slope
Sum of a2
Intercept = Average Y - (slope x Average X) Intercept

Required: 1. Find the cost equation for total cost: Total cost = Fixed Cost + Variable Cost*Activity 2. Predict the total cost for 4,000 services 3. Comment on the quality of the prediction. If you used a regression package like the 'Data Analysis' add-in, what was the R2 for the regression and what does that mean? Whether you used a regression package or not,were the actual costs for the months nearest 4,000 services about where they should be using the cost predictions? 4. If you had enough influence over the local economy that you could set prices, at what retail price would you set services if you wished to make $10,000 in a month where there were 4,000 services?

First! Find Average Services Provided and Average Operating Expenses

Second! Find the deviations from Ave(x) and Ave(y) for each observation

Three and four! Multiple the two columns and square the first column

To do this by hand.

Five and six! Find the slope and the intercept

Sheet2

Sheet3