Question

An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing operation.

Production Volume (units)	Total Cost ($)
400	4,800
450	5,800
550	6,200
600	6,700
700	7,200
750	7,800

1. Compute b₁ and b₀ (to 1 decimal).
   b₁  
   b₀  
   
   Complete the estimated regression equation (to 1 decimal).
   =  +  x
   
2. What is the variable cost per unit produced (to 1 decimal)?
   $
   
3. Compute the coefficient of determination (to 3 decimals). Note: report r² between 0 and 1.
   r² =  
   
   What percentage of the variation in total cost can be explained by the production volume (to 1 decimal)?
   %
   
4. The company's production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation (to the nearest whole number)?
   $

Answer 1

STEP 1:

Copy the data given in the question

STEP 2:

Paste it into the MS-Escel

STEP 3:

Go to Data > Data Analysis > Regression

STEP 4:

Input the data in X and Y segments > Tick on the output that you need > Press Apply

You will get the detailed table as:

TO UNDERSTAND THE TABLE, REFER THE FOLLOWING TABLE