The new cost analyst in your accounting department has just received a computer-generated report that contains the results from a simple regression analysis. He was estimating the marketing department costs using volume of units sold as the cost driver. The summary results of the report appeared as follows:
Variable Coefficient t-statistic p-value
intercept 2,222.35 2.48 p

Question

The new cost analyst in your accounting department has just received a computer-generated report that contains the results from a simple regression analysis. He was estimating the marketing department costs using volume of units sold as the cost driver. The summary results of the report appeared as follows:
Variable Coefficient t-statistic p-value
intercept 2,222.35 2.48 p<0.01
X1 12.44 1.39 p = 0.25
Adjusted R-square = 0.40
a)Write an equation for total cost based upon the regression analysis.
b)What does the Adjusted R-square tell you about the quality of information that would be produced using this cost driver? Explain.
c)Is it economically plausible that the volume of units sold could drive the costs of the marketing department? Explain.
d)List two other cost drivers that the cost analyst could try and explain why they might be useful.
e)Describe discretionary costs.
f)Is it possible for marketing costs to be discretionary? Explain.
g)Describe how to estimate a discretionary cost.

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The Answer of The new cost analyst in your accounting department has just received a computer-generated report that contains the results from a simple regression analysis. He was estimating the marketing department costs using volume of units sold as the cost driver. The summary results of the report appeared as follows:
Variable Coefficient t-statistic p-value
intercept 2,222.35 2.48 p<0.01
X1 12.44 1.39 p = 0.25
Adjusted R-square = 0.40
a)Write an equation for total cost based upon the regression analysis.
b)What does the Adjusted R-square tell you about the quality of information that would be produced using this cost driver? Explain.
c)Is it economically plausible that the volume of units sold could drive the costs of the marketing department? Explain.
d)List two other cost drivers that the cost analyst could try and explain why they might be useful.
e)Describe discretionary costs.
f)Is it possible for marketing costs to be discretionary? Explain.
g)Describe how to estimate a discretionary cost.

The New Cost Analyst in Your Accounting Department Has Just