The Following Data Were Obtained from the Books of Thomas

question 88

Essay

The following data were obtained from the books of Thomas Company:
$$\begin{array} { | c | c | c | } \hline \text { Manth } & \text { Overhead Costs } & \begin{array} { c } \text { Direct Labour } \\\text { Hours }\end{array} \\\hline 1 & \$ 14 & 3 \\\hline 2 & 18 & 5 \\\hline 3 & 25 & 7 \\\hline 4 & 12 & 4 \\\hline 5 & 26 & \mathbf { 8 } \\\hline 6 & \mathbf { 8 } & 2 \\\hline\end{array}$$ The normal equations are
$\begin{array} { l } \boldsymbol { \Sigma X Y } = a\Sigma X + b \Sigma X ^ { 2 } \\\Sigma Y = a n + b \Sigma X\end{array}$ Use a computer or calculator to prepare the following:
a.Plot the data for overhead cost as a function of direct labour hours using the scatterplot method.
b.Compute the fixed and variable components of the overhead costs using the high-low method.
c.Compute the fixed and variable components of the overhead costs using the least-squares method.
d.Discuss the strengths and weaknesses of the three different cost estimation techniques used in parts a,b,and

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Definitions:

Information Ratio

A measure of a portfolio manager's performance and ability to generate excess returns relative to a benchmark, considering the volatility of those returns.

Residual Standard Deviation

This is a measure used in statistics to estimate the standard deviation of the residuals (errors) from a regression line, indicating how well the model fits the data.

Beta

A measure of a security's volatility in relation to the overall market; used as a gauge of its risk.

T-Bills

Short-term government securities issued at a discount from par value and maturing at face value, providing a return in the form of the difference between the purchase price and the maturity value.