Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 45

Interpretation of Regression Results: Multiple Choice

The Business School at Eastern College is collecting data as a first step in the preparation of next year’s budget. One cost that is being looked at closely is administrative staff as a function of student credit hours. Data on administrative costs and credit hours for the most recent 13 months follow:

Month	Administrative Costs	Credit Hours
July	$ 543,064	525
August	346,975	242
September	960,036	2,923
October	908,855	2,100
November	1,084,705	2,749
December	774,686	2,335
January	920,375	2,812
February	1,029,000	2,883
March	880,496	2,234
April	806,085	2,358
May	1,049,908	2,856
June	715,756	882
July	538,301	662
Total	$10,558,242	25,561
Average	$ 812,172	1,966

The controller’s office has analyzed the data and given you the results from the regression analysis:

Required

a. In the standard regression equation y = a + bx, the letter b is best described as the

(1) Independent variable.

(2) Dependent variable.

(3) Constant coefficient.

(4) Correlation coefficient.

(5) Variable cost coefficient.

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b. In the standard regression equation y = a + bx, the letter y is best described as the

(1) Independent variable.

(2) Correlation coefficient.

(3) Constant coefficient.

(4) Variable cost coefficient.

(5) Dependent variable.

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c. In the standard regression equation y = a + bx, the letter x is best described as the

(1) Independent variable.

(2) Dependent variable.

(3) Constant coefficient.

(4) Variable cost coefficient.

(5) Correlation coefficient.

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d. If the controller uses the high-low method to estimate costs, the cost equation for administrative costs is (numbers are rounded to the nearest dollar)

(1) Cost = $291,637 + 229 × Credit hours.

(2) Cost = $233,571 + 101 × Credit hours.

(3) Cost = $229.50 × Credit hours.

(4) Cost = $404,874.

(5) Some other equation.

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e. Based on the results of the controller’s regression analysis, the estimate of administrative costs in a month with 2,100 credit hours would be

(1) $834,993.

(2) $844,200.

(3) $404,917.

(4) $839,575.

(5) Some other amount.

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f. The correlation coefficient (rounded) for the regression equation for administrative costs is

(1) 0.871.

(2) 0.933.

(3) 0.859.

(4)

(5) Some other amount.

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g. The percent of the total variance (rounded) that can be explained by the regression is

(1) 85.9.

(2) 87.1.

(3) 93.3.

(4) 96.6.

(5) Some other amount.

Step 1 of 19

a.

In the regression equation, the term b is not a constant value it changes. The value of b is not dependent on any other value. the value of b is neither a relation nor the Independent.