ii Regression analysis

Full Answer Section

Comparison:

The high-low method is simpler but less accurate, especially with limited data points. Regression analysis provides a more statistically valid equation but requires more technical expertise.

3. Estimation for May:

Using High-low method:

Estimated cost for 900 hours = 200 Sh. + (0.25 Sh./hour * 900 hours) = 325 Sh.

Using Regression analysis:

Substitute 900 hours into the equation obtained from your regression analysis software.

Remember to check both results for reasonableness and potential limitations due to data sample size or outliers.

This response provides guidance on both methods and outlines the steps involved. Remember to use your specific data and software for actual calculations and interpretations.

Sample Solution

Cost Estimation Function Analysis:

1. High-Low Method:

This method uses the highest and lowest activity levels and their corresponding costs to estimate the cost function.

• Highest activity: April (1600 hours, 550 Sh.)
• Lowest activity: March (400 hours, 150 Sh.)

Cost change per unit: (550 Sh. - 150 Sh.) / (1600 hours - 400 hours) = 0.25 Sh./hour

Fixed cost: Highest cost - (Variable cost per unit * Highest activity) = 550 Sh. - (0.25 Sh./hour * 1600 hours) = 200 Sh.

Cost function: Cost = Fixed cost + Variable cost per unit * Activity level Therefore, Cost = 200 Sh. + 0.25 Sh./hour * Machine hours

2. Regression Analysis:

This method uses statistical analysis to fit a cost equation to all data points. You can use software like Excel or online tools to perform the regression.

• Enter the data for Machine hours and Maintenance costs
• Choose the "Linear Regression" function
• The resulting equation will represent the cost function