EXERCISE 5-12 (30 MINUTES)

4.

Machine Hours Electrical Costs

Week 1 7,200 ¥77,100 Week 2 8,200 ¥84,400 Week 3 8,700 ¥80,400 Week 4 7,200 ¥75,500 Week 5 7,400 ¥81,100 Week 6 8,800 ¥83,300 Week 7 6,400 ¥79,200 Week 8 7,700 ¥85,500 Using statistical software or a spreadsheet application such as Excel to compute estimates of the intercept and the slope for the above data, the results are: Intercept (fixed cost per week) ... ¥63,528 Slope (variable cost per machine-hour)... ¥2.24 R

2

... 0.28 Therefore the cost formula for electrical costs is ¥63,528 per week plus ¥2.24 per machine-hour, or Y = ¥63,528 + ¥2.24 X, where X is machine-hours. Note that the R

2

is 0.28, which means that only 28% of the variation in electrical cost is explained by machine-hours. Other factors, discussed in part (6) below, are responsible for most of the variation in electrical costs from week to week. Case 5-25 (continued)