Part A: Indirect labour hours and indirect labour costs 1. Draw a scatter diagram of the cost data. 2. Visually fit a cost line to the scatter diagram. 3. Estimate the variable and fixed components of...

Part A:   Indirect labour hours and indirect labour costs


1.    Draw a scatter diagram of the cost data.




2.    Visually fit a cost line to the scatter diagram.




3.    Estimate the variable and fixed components of the department’s cost behaviour pattern using the visually fit cost line and specify an equation to express the department’s cost behaviour.


4.    Estimate the cost behaviour using the high-low method. Use an equation to express the results of this estimation method.


5.    Compute the least-squares regression estimate of the variable and fixed-cost components. All manual calculations will need to be shown. This will incorporate the following calculations.
•    The coefficients of both the intercept and x variable
•    The coefficient of determination, r2 measures the percentage of variation in Y explained by X (the independent variable). I.e. the proportion of the change in the dependent variable that is explained by the change in the independent variable.
•    Standard Error of Estimate: A measure of the reliability of the estimating equation.

•    The standard error of both the intercept and x variable.

•    The t-stat.


6.    Use the Excel regression function to verify your calculations


7.    You will need to comment and explain what these mean and their significance


PART B:    Widgets produced and indirect labour costs


1.    Draw a scatter diagram of the cost data.


2.    Visually fit a cost line to the scatter diagram.


3.    Estimate the variable and fixed components of the department’s cost behaviour pattern using the visually fit cost line and specify an equation to express the department’s cost behaviour.


4.    Estimate the cost behaviour using the high-low method. Use an equation to express the results of this estimation method.


5.    Compute the least-squares regression estimate of the variable and fixed-cost components. All manual calculations will need to be shown. This will incorporate the following calculations.
•    The coefficients of both the intercept and x variable
•    The coefficient of determination, r2 measures the percentage of variation in Y explained by X (the independent variable). I.e. the proportion of the change in the dependent variable that is explained by the change in the independent variable.
•    Standard Error of Estimate: A measure of the reliability of the estimating equation.

•    The standard error of both the intercept and x variable.

•    The t-stat.


6.    Use the Excel regression function to verify your calculations


7.    You will need to comment and explain what these mean and their significance


PART C:

1.    Use multiple regression analysis to estimate the behaviour of the indirect labour costs.


Because there are two independent variables, it is necessary to use multiple regression analysis, utilising Excel.



2.    Interpret all significant statistics.



3.    Calculate the total variable cost and the fixed cost per indirect labour hour at 600 hours and 87000 widgets. Explain the problems might occur when using fixed cost per hour in decisions.

4.    How well do the regressors, taken together, explain the variation in the dependent variable?



5.    Are the regressors, taken together, significantly associated with the dependent variable?


6.    What relationship does each regressor have with the dependent variable when all other regressors are held constant?


7.    Which regressor has most effect on the dependent variable?


8.    Are the relationships of each regressor with the dependent variable statistically significant, with all other regressors taken into account?