Ans

1. The correct answer is D.

WORKING
Based on month 1 & 2, use high low method to find variable overheads:
Increase in overheads = $3,440
Increase in hours = 80

Variable cost per hour: $3,440/80 = $43

Fixed cost = $442,500 − (7,500 × $43)

or $439,060 − (7,420 × $43) = $120,000

Therefore, 7,150 hours at $43 = $307,450 + $120,000 = $427,450
2. The correct ans is A
3. The correct answer is B.
WORKING
Calculating the cumulative average time per unit for 500 times, using the formula:
Y = axb:
a = 50 minutes, x = 500, b = −0.4150375
Y = 3.791. This is the cumulative average time per job.
Therefore total time for 500 = 500 × 3.791 = 1,895.5 minutes.
4. The correct answer is D.
WORKING
Cumulative average for two times = ½ (50 + 35) = 42.5
Therefore, as cumulative output doubled (from 1 to 2 units), cumulative average time fell
to 85% (42.5/50).
5. The correct ans is 15 units
Tutorial note: All subsequent units take the same time as the nth unit. It is therefore
necessary to calculate the “incremental time” for each unit to find at what point the
incremental time per unit becomes constant.
WORKING

Cumulative Cumulative Incremental

Output (units) total time (minutes) time (minutes)

13 1,074.6
 14 1,151.6 77

15 1,227.6 76

16 1,303.6 76

… …

20 1,607.5

21 1,683.5 76

22 1,759.5 76
The 16th unit took the same time as the 15th unit, meaning that the value of n is 15.
6. The correct answer is C.
WORKING
Forecast = Trend × Seasonal = (400 + 10T) x S = (400 + (10 × 7)) × 1.1 = 517 units
7. The correct answer is D.
Tutorial note: If the coefficient of determination is 0.9604, the correlation coefficient is
√0.96 = +0.98 or −0.98. This shows the variables are strongly correlated, but not
whether the correlation is positive or negative.
8. The correct answers is B and D.
Tutorial note: One assumption of simple linear regression is that the dependent
variable is only affected by one independent variable; it cannot deal with multiple
independent variables. Another assumption is that what happened in the past (as
reflected in historical data) will continue in the future.
Simple linear regression is suitable when there is correlation between two variables; this
can be positive or negative correlation. Interpolation (i.e. forecasting within the range of
the original data) is more reliable than extrapolation (i.e. forecasting outside the range of
the original data).
9. The correct answers is A.
Tutorial note: The correlation coefficient (r) must be calculated to decide if statement
(1) is correct.
The formula for this is given on the formula sheet:
r = (nΣxy – ΣxΣy)/√[(nΣx²–(Σx)²)(nΣy²–(Σy)²)]
WORKING
Top line: nΣxy – ΣxΣy = (8 x 12,475) – (89 x 1,063) = 5,193
Bottom line: √[nΣx²–(Σx)²][nΣy²–(Σy)²] = √[(8 x 1,047 – 89²)(8 x 150,251 – 1,063²)] =
√(455 x 72,039) = 5,725
Therefore r = 5,193/5,725 = 0.907 = 0.9 to one decimal place. Statement 1 is correct.
Statement 2 relates to the coefficient of determination (r²).
r² = 0.92 = 0.81 = 81%. This means that 81% of the variation in factory overheads is
explained by the change in the number of labour hours worked and therefore statement
2 is incorrect.
10. The correct answer is C.
WORKING

Cumulative Cumulative Incremental

output (units) total time (hours) time (hours)

1st batch 10 120

Next 3 batches 40 270 150

The cumulative average time per batch is 67.5 hours (270/4) and cumulative output has
doubled twice (from 10 to 20 units and from 20 to 40). So, expressing this as an
equation and then solving to find the learning rate, r:
67.5 = 120r2.
67.5/120 = r2
0.5625=r2
√0.5625 = r
0.75 = r
Therefore, the learning rate is 75%.