Question
On the third day in your role as accountant the general manager has asked you to review the results of 2012 and 2013 to try and determine if there is a relationship between the number of meals prepared per month and the administration costs which she believes to be too high. Data regarding the number of conferences per month, number of meals prepared for that month and the administration costs for the months of 2012 and 2013 are as follows:
Required:
a) Draw a scatter diagram of Boutique Catering's Number of meals prepared and administrative costs for the year.
b) The relevant range has been identified as between 200 and 800 meals prepared. Mark the range on the scatter graph. Do you think this is an appropriate range? Why?
c) The high-low method in another way of estimating the cost behaviour of Boutique Catering. Using administration costs and number of meals prepared within the relevant range create an equation to express the results.
d) A third method that can help understand the cost behaviour relationship is by using regression analysis. Construct an excel spreadsheet and use regression analysis to estimate the;
a. Number of meals and administration cost. What is the administration costs' equation when 600 meals are prepared?
b. Number of meals, administration costs and number of conferences. What is the administration cost when 600 meals are prepared?
e) From the methods used which method would you feel most confident to report the findings to the General Manager? In your answer make particular reference to the advantages and disadvantages of each method and in addition discuss the cost-benefit of each method.