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Managerial Accounting : Cost Structures, High-Low Method and Least Squares Linear Regression

Something New is a small one-person company that provides elaborate and imaginative wedding cakes to order for very large wedding receptions. The owner of the company would like to understand the cost structure of the company and has compiled the following records of activity and costs incurred. The owner believes that the number of weddings catered is the best measure of activity.

Month
Weddings
Costs Incurred

January
3
$3,800

February
2
$3,600

March
6
$4,000

April
9
$4,300

May
12
$4,500

June
20
$5,200

Required:

a. Using the high-low method, estimate the variable cost per wedding and the total fixed cost per month. (Round off the variable cost per wedding to the nearest cent and the total fixed cost to the nearest dollar.)

b. Using the least-squares regression method, estimate the variable cost per wedding and the total fixed cost per month. Express the cost data in the form of : y = a + bx

Costs Incurred

January
3
$3,800

February
2
$3,600

March
6
$4,000

April
9
$4,300

May
12
$4,500

June
20
$5,200

Required:

a. Using the high-low method, estimate the variable cost per wedding and the total fixed cost per month. (Round off the variable cost per wedding to the nearest cent and the total fixed cost to the nearest dollar.)

b. Using the least-squares regression method, estimate the variable cost per wedding and the total fixed cost per month. Express the cost data in the form of : y = a + bx

Solution Summary

Cost Structures, High-Low Method and Least Squares Linear Regression are investigated.

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