Reference no: EM132986480

QUESTION

The accounting department of a large super market is analyzing the costs of its services. The cost data and level of activity for the past 16 months is as follows:

Table 1: Aggregate Costs (Account Analysis)

Account                              Total Accounting Services Cost £                  Behaviour

                                                       Fixed £                                               Variable £

Cost of pay cheques processed               180,100                                      180,100

Cost of maintaining customer accounts       109,600                                    61,000

Cost of performing special analyses           120,000                                        60,000

Other costs                                               550,250                                       150,250

Total costs                                               959,950

The same cost data analyzed on monthly basis is included in table 2.

Table 2: Monthly Cost Data

Month	Special analyses	Customer accounts	Pay cheques processed	Total Accounting Services costs £
Nov-15	2	325	1029	63,800
Dec-15	4	310	993	68,900
Jan-16	2	302	1268	64,000
Feb-16	1	213	1028	61,300
Mar-16	2	222	984	61,600
Apr-16	0	214	712	50,800
May-16	1	131	762	51,020
Jun-16	1	123	739	54,300
Jul-16	0	115	708	50,500
Aug-16	2	296	1232	64,800
Sep-16	2	213	978	58,000
Oct-16	1	222	929	57,500
Nov-16	2	217	1059	62,200
Dec-16	2	132	942	54,900
Jan-17	4	300	1299	71,530
Feb-17	4	315	1283	64,800
Totals	30	3,650	15,945	9,59,950

Required:

(a) formulate an estimate of accounting services costs for March 2017 assuming that 2 special analyses will be conducted, there will be 318 accounts and 1325 pay cheques will be processed. (use account analysis approach - information in table 1)

(b) Use the high-low method to formulate an estimate of accounting services costs for March 2017 assuming that 318 customer accounts will be serviced. (Use the monthly data included in table 2).

(c) formulate an estimate of operating costs for March 2017 assuming that 1325 pay cheques will be processed using the results of a simple linear regression of accounting services costs on pay cheques processed (Use the monthly data included in table 2).

(d) Formulate an estimate of operating costs for March 2017 assuming that 2 special analyses will be conducted, there will be 318 accounts and 1325 pay cheques will be processed using multiple regression analysis.

(e) Make a recommendation to the managers about the most appropriate estimate given the circumstances.