Question 1: Question 2: Sage, Inc. used Excel to run a least-squares regression

Question

Question 1:

Question 2:

Sage, Inc. used Excel to run a least-squares regression analysis, which resulted in the following output: Regression Statistics Multiple R R Square Observations 0.9682 0.9374 30 Standard Error 8,273 0.6863 T Stat 2.82 8.13 P-Value 0.009 0.000 Coefficients 23,327 Intercept Production (X) 5.58 a. What is Sage's total fixed cost? Total Fixed Costs b. What is Sage's variable cost per unit? (Round your answer to 2 decimal places.) Variable Costs Per Unit c. What total cost would Sage predict for a month in which they sold 14,000 units? (Round your intermediate calculations to 2 decimal places.) Total Costs

Explanation / Answer

Solution.

High-Low Method

High-Low Method Formulas :-

Variable Cost per Unit

Variable cost per unit (b) is calculated using the following formula:

Total Fixed Cost = y2 bx2 = y1 bx1

Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/labor hours etc. at highest level of activity; and
x1 are the number of units/labor hours etc. at lowest level of activity

At highest activity: x2 = 8,750; y2 = $32,800
At lowest activity: x1 = 4,150; y1 = $19,000

Variable Cost per Unit = ($32,800 $19,000) ÷ (8,750 4,150) = $3 per unit
Total Fixed Cost = $32,800 ($3 × 8,750) = $19,000 ($3 × 4,150) = $6,550
Cost Volume Formula: y = $6,550 + 3x

B. Calculation of total cost of 5,350 unit.

= $6,550 + 5,350x $3

= $22,600.

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