Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 36

Methods of Cost Analysis: Account Analysis, Simple and Multiple Regression Using a Spreadsheet (Appendix A)Caiman Distribution Partners is the Brazilian distribution company of a U.S. consumer products firm. Inflation in Brazil has made bidding and budgeting difficult for marketing managers trying to penetrate some of the country's rural regions. The company expects to distribute 450,000 cases of products in Brazil next month. The controller has broken down and classified operating costs (excluding costs of the product distributed) as follows:

Although overhead costs were related to revenues throughout the company, the experience in Brazil suggested to the managers that they should incorporate information from a published index of Brazilian prices in the distribution sector to forecast overhead in a manner more likely to capture the economics of the business.
Following instructions from the corporate offices, the controller's office in Brazil collected the following information for monthly operations from last year:

These data are considered representative for both past and future operations in Brazil.
Required
a. Prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month based on the controller's analysis of accounts.
b. Use the high-low method to prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month.
c. Prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month by using the results of a simple regression of operating costs on cases shipped.
d. Prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month by using the results of a multiple regression of operating costs on cases shipped and the price level. Assume a price level of 145 for next month.
e. Make a recommendation to the managers about the most appropriate estimate given the circumstances.