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    Management planning and decision making

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    Check Figure
    (1) Y=$28,352+$2,582X

    The Hard Rock Mining Company is developing cost formulas for management planning and decision making purposes. The company's cost analyst has concluded that utilities cost is a mixed cost, and he is attempting to find a base with which the cost might be closely correlated. The controller has suggested that tons mined might be a good base to use in developing a cost formula. The production superintendent disagrees; she thinks that direct labor hours would be a better base. The cost analyst has decided to try both bases and has assembled the following information:

    Direct
    Tons Mined Labor_Hours Utilities
    Quarter (000) (000) Cost

    Year 1
    First ............. 15 5 $ 50,000.00
    Second ............. 11 3 $ 45,000.00
    Third ............. 21 4 $ 60,000.00
    Fourth ............. 12 6 $ 75,000.00
    Year 2
    First ............. 18 10 $100,000.00
    Second ............. 25 9 $105,000.00
    Third ............. 30 8 $ 85,000.00
    Fourth ............. 28 11 $120,000.00

    Required:
    1. Using tons mined as the independent (X) variable:
    a. Determine a cost formula for utilities cost using the least-squares regression method. (The variable cost you compute will be in thousands of tons. It can be left in this form, or you can convert your variable cost to a per ton basis by dividing it by 1,000)

    B. Prepare a scatter graph and plot the tons mined and utilities cost. (Place cost on the vertical axis and tons mined on the horizontal axis.) Fit a straight line to the plotted points using the cost formula determined in (a) above.

    2. Using direct labor-hours as the independent (x) variable, repeat the computations in (a) and (b) above.

    3. Would you recommend that the company uses tons mined or direct labor- hours as a base for planning utilities cost?

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    https://brainmass.com/business/business-policy-and-implementation/management-planning-and-decision-making-156799

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    Solution Summary

    Excel file contains a scatter graph and estimation of utilities cost using the least-squares regression method

    $2.19

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