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Using Regression to Calculate Fixed Cost, Calculate the Variable Rate, Construct a Cost Formula, and Determine Budgeted Cost
Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected:
| Month | | Labor Cost | | Employee Hours |
| January | | $7,000 | | 360 |
| February | | 8,140 | | 550 |
| March | | 9,899 | | 630 |
| April | | 9,787 | | 610 |
| May | | 8,490 | | 480 |
| June | | 7,450 | | 350 |
| July | | 9,490 | | 570 |
| August | | 7,531 | | 310 |
Coefficients shown by a regression program for Pizza Vesuvio's data are:
| Intercept | 4,517 |
| X Variable | 8.20 |
In your calculations, round the variable rate per employee hour to the nearest cent.
Required:
Use the results of regression to make the following calculations:
1. Calculate the fixed cost of labor. $
Calculate the variable rate per employee hour. $per employee hour
2. Construct the cost formula for total labor cost.
Total labor cost = $ + ($ Employee hours)
3. Calculate the budgeted cost for next month, assuming that 675 employee hours are budgeted. $
Answer & Explanation
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