Question

Berk and Company is a computer company that specializes in providing services. The company owns and maintains several autos for use by sales staff. All expenses of operating these autos have been entered into an Automobile Expense account on the Company’s books.

Berk and Company’s records of miles driven and total auto expenses over the past 10 months are given below:

     

Month	Total Mileage	Total Cost
January	4,000	$ 3,000
February	8,000	$ 3,700
March	7,000	$ 3,300
April	12,000	$ 4,000
May	6,000	$ 3,300
June	11,000	$ 3,900
July	14,000	$ 4,200
August	10,000	$ 3,600
September	13,000	$ 4,100
October	15,000	$ 4,400

Use the least squares regression method and answer the following questions, attach the Excel spreadsheet that was utilized.

What is the firm’s total fixed cost per month?

What is the firm’s variable operating cost per mile driven?

What is the firm’s total cost equation?

Based on the data provided, should the analyst have confidence in the estimated total cost equation? Why or why not?

Compute total operating costs if the firm drives 20,000 miles in November.

Answer 1