MBA 641 Case Assignment #1

This case study for MBA 641 Managerial Accounting requires students to analyze repair and maintenance costs for Sultan Company. Using data from the past 24 months, students must estimate a cost formula using both the high-low method and least-squares regression analysis, with machine hours and labor hours as potential cost drivers. The analysis should assess the fairness of the contractors' current fees (a flat rate plus a per-labor-hour charge). Students need to compare the results of the high-low method and the regression analyses, evaluating the accuracy of each and identifying any concerns about the contractors' fees based on their findings. The assignment emphasizes understanding cost behavior and applying analytical techniques to managerial decision-making.

MBA 641 Managerial Accounting
Assessment Instrument
Case Assignment # 1(20marks)
Due Date: 10 June, 2016 (before 8 pm)
Instructor: Professor Mohamed Ibrahim
This case assignment addresses the following course learning outcome (CLOs).
No CLO Question
4
Demonstrate an advanced understanding of the process and structure of
management planning and control system with respect to achievement of corporate
objectives.
1-5
Sultan Company wants to develop a cost formula (function) for its repairs and maintenance
costs (R&M Costs) so it can deal with its contractors in a way that helps maximizing the
Company’s return. Currently, the contractors are charging the Company a monthly flat rate of
20,000 AED plus AED 20 per labor hour. Some managers argue that labor hours are the best
predictor of repair and maintenance costs. Others are claiming that machine hours are a better
predictor of repair and maintenance costs.
The accountant suggested collecting data about repairs and maintenance costs, number of
labor hours, and number of machine hours for the last 24 months. He indicated that analyzing
these data will help judge the fairness of the fees charged by the contractors.
The following table presented collected data for possible analysis:
Month Machine hours labor hours R&M Costs
January, 2014 29000 15000 95500
February 24000 16000 99500
March 22500 16500 89000
April 21000 14000 90000
May 20500 15500 81500
1

June 19500 16000 75500
July 14000 11500 70500
August 8000 7500 64500
September 12000 4000 69000
October 16500 13000 75000
November 16000 11000 71500
December 18500 12000 78000
January, 2015 21500 17000 86000
February 24000 18000 93000
March 23000 17500 93000
April 22000 17900 87000
May 20000 16700 80000
June 18000 14000 76500
July 12500 8900 67500
August 13000 9500 71000
September 15000 11000 73500
October 17000 12000 72500
November 15000 11500 71000
December 18800 13500 79000
Required: (4 marks each)
1. Using the high-low method, estimate R&M cost formula. Do the results of the high-low
method cause you any concern about the current fees charged by the contractors?
2. Employ a least-square regression analysis with the relevant data points to estimate R&M
cost formula using machine hours as the cost driver. Attach the print-out of your results.
3. Employ a least-square regression analysis with the relevant data points to estimate R&M
cost formula using labor hours as the cost driver. Attach the print-out of your results.
2

4. Which regression analysis would you consider better than the other? Do the results of
the regression analysis cause you any concerns about the accuracy of the high-low
method??
5. Would the results of the regression analysis cause you any concerns about the current
fees charged by the contractors?
3