Question

1. Using Regression to Calculate Fixed Cost, Calculate the Variable Rate, Construct a Cost Formula, and Determine Budgeted Cost

   Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected as follows:

   Month	Delivery Cost	Number of Deliveries
   May	$63,450	1,800
   June	67,120	2,010
   July	66,990	2,175
   August	68,020	2,200
   September	73,400	2,550
   October	72,850	2,630
   November	75,450	2,800
   December	73,300	2,725

   Coefficients shown by a regression program for Speedy Pete’s data are:

   Intercept	43,293
   X Variable	11.34

   In your calculations, round the variable rate per delivery to the nearest cent.

   Required:

   Use the results of regression to make the following calculations:

   1. Calculate the fixed cost of deliveries.
   $

   Calculate the variable rate per delivery.
   $per delivery

   2. Construct the cost formula for total delivery cost.

   Total Delivery Cost = $ + ($ × Number of Deliveries)

   3. Calculate the budgeted cost for next month, assuming that 3,000 deliveries are budgeted.
   $

Answer 1

1.) Fixed Cost = $ 43,293

Intercept or A represent fixed cost

Variable Cost per Delivery= $ 11.34 Per Delivery

X variable considered as variable cost per unit.

Means b in formula

Regression Equation = Y = a+b (x)

Y= Total Cost

A= Fixed cost ( Intercept)

B= variable cost Per unit

X= Number of Deliveries

2) Total Delivery cost = $ 43,293+ ($ 11.34 * number of Deliveries)

3) Budgeted Cost that 3,000 Deliveries = using regression formula:

=$43,293+ $11.34*3000 = $ 77,313.00