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Time Series Model

Forums › Ask CIMA Tutor Forums › Ask CIMA P1 Tutor Forums › Time Series Model

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by Cath.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • January 18, 2017 at 9:05 am #368113
    jforrest19
    Member
    • Topics: 7
    • Replies: 1
    • ☆

    Hello,

    I’m getting a slightly different answer from the P1 pearson mock on this question, wonder if someone could please explain the workings.

    Many Thanks
    James

    The overhead costs of a company can be estimated using the formula:
    y = $20,000 + $0.50x
    where y is the monthly cost and x represents the monthly activity level measured in units.

    Monthly activity levels in units may be estimated using a time series model:
    a = 50,000 + 20b
    where ‘a’ represents the monthly activity level and ‘b’ represents the month number.

    In month 300, when the seasonal index value is 105, what is the overhead cost expected to be?

    Give your answer to the nearest $.

    Answer on mock is 49400

    January 21, 2017 at 9:00 pm #368795
    Cath
    Participant
    • Topics: 0
    • Replies: 447
    • ☆☆☆

    Hi,
    Sorry for the delay

    We find monthly activity as

    a= [50000+20(300)]x105 = 58800

    then
    Overhead costs= 20000 + 0.5(58800) = 49400

    This reconciles with the model answer – so hopefully you can follow.

    Kind Regards
    Cath

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