Appendix 2A
Least Squares Regression Computations
True / False Questions
1. (Appendix 2A) The R2 (i.e., R-squared) is a measure of the goodness-of-fit in least-squares
regression.
True False
2. (Appendix 2A) When analyzing a mixed cost, you should always plot the data in a scattergraph,
but it is particularly important to check the data visually on a scattergraph when the R 2 from a
least squares regression is low. A quick look at the scattergraph can reveal that there is little
relation between the cost and the activity or that the relation is something other than a simple
straight line.
True False
Multiple Choice Questions
App02A-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,3. (Appendix 2A) _________________ is a method of separating a mixed cost into its fixed and
variable elements by fitting a line to the data that minimizes the sum of the squared errors.
A. Account analysis
B. Scattergraph
C. High-low
D. Least-square regression
4. (Appendix 2A) Your boss would like you to estimate the fixed and variable components of a
particular cost. Actual data for this cost over four recent periods appear below.
Activity Cost
Period 1 24 $174
Period 2 25 $179
Period 3 20 $165
Period 4 22 $169
Using the least-squares regression method, what is the cost formula for this cost?
A. Y = $0.00 + $7.55X
B. Y = $110.44 + $2.70X
C. Y = $103.38 + $3.00X
D. Y = $113.35 + $0.89X
App02A-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,5. (Appendix 2A) The management of Bandle Corporation would like for you to analyze their repair
costs, which are listed below:
Machine-Hours Repair Costs
March 6,966 $102,067
April 6,952 $101,966
May 6,924 $101,759
June 6,967 $102,072
July 6,963 $102,027
August 6,996 $102,243
September 6,964 $102,031
October 6,926 $101,776
Management believes that repair cost is a mixed cost that depends on the number of machine-
hours. Using the least-squares regression method, the estimates of the variable and fixed
components of repair cost would be closest to:
A. $6.72 per machine-hour plus $55,230 per month
B. $6.80 per machine-hour plus $54,679 per month
C. $7.28 per machine-hour plus $51,389 per month
D. $14.66 per machine-hour plus $101,993 per month
App02A-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 6. (Appendix 2A) Laborn Inc.'s inspection costs are listed below:
Units Produced Inspection Costs
March 265 $11,254
April 248 $10,684
May 272 $11,516
June 235 $10,210
July 207 $9,258
August 217 $9,578
September 261 $11,108
October 274 $11,578
Management believes that inspection cost is a mixed cost that depends on the number of units
produced. Using the least-squares regression method, the estimates of the variable and fixed
components of inspection cost would be closest to:
A. $43.04 per unit plus $10,648 per month
B. $34.63 per unit plus $2,089 per month
C. $34.78 per unit plus $2,044 per month
D. $36.00 per unit plus $1,714 per month
App02A-4
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Least Squares Regression Computations
True / False Questions
1. (Appendix 2A) The R2 (i.e., R-squared) is a measure of the goodness-of-fit in least-squares
regression.
True False
2. (Appendix 2A) When analyzing a mixed cost, you should always plot the data in a scattergraph,
but it is particularly important to check the data visually on a scattergraph when the R 2 from a
least squares regression is low. A quick look at the scattergraph can reveal that there is little
relation between the cost and the activity or that the relation is something other than a simple
straight line.
True False
Multiple Choice Questions
App02A-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,3. (Appendix 2A) _________________ is a method of separating a mixed cost into its fixed and
variable elements by fitting a line to the data that minimizes the sum of the squared errors.
A. Account analysis
B. Scattergraph
C. High-low
D. Least-square regression
4. (Appendix 2A) Your boss would like you to estimate the fixed and variable components of a
particular cost. Actual data for this cost over four recent periods appear below.
Activity Cost
Period 1 24 $174
Period 2 25 $179
Period 3 20 $165
Period 4 22 $169
Using the least-squares regression method, what is the cost formula for this cost?
A. Y = $0.00 + $7.55X
B. Y = $110.44 + $2.70X
C. Y = $103.38 + $3.00X
D. Y = $113.35 + $0.89X
App02A-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,5. (Appendix 2A) The management of Bandle Corporation would like for you to analyze their repair
costs, which are listed below:
Machine-Hours Repair Costs
March 6,966 $102,067
April 6,952 $101,966
May 6,924 $101,759
June 6,967 $102,072
July 6,963 $102,027
August 6,996 $102,243
September 6,964 $102,031
October 6,926 $101,776
Management believes that repair cost is a mixed cost that depends on the number of machine-
hours. Using the least-squares regression method, the estimates of the variable and fixed
components of repair cost would be closest to:
A. $6.72 per machine-hour plus $55,230 per month
B. $6.80 per machine-hour plus $54,679 per month
C. $7.28 per machine-hour plus $51,389 per month
D. $14.66 per machine-hour plus $101,993 per month
App02A-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 6. (Appendix 2A) Laborn Inc.'s inspection costs are listed below:
Units Produced Inspection Costs
March 265 $11,254
April 248 $10,684
May 272 $11,516
June 235 $10,210
July 207 $9,258
August 217 $9,578
September 261 $11,108
October 274 $11,578
Management believes that inspection cost is a mixed cost that depends on the number of units
produced. Using the least-squares regression method, the estimates of the variable and fixed
components of inspection cost would be closest to:
A. $43.04 per unit plus $10,648 per month
B. $34.63 per unit plus $2,089 per month
C. $34.78 per unit plus $2,044 per month
D. $36.00 per unit plus $1,714 per month
App02A-4
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
