Question

Lacourse Inc.'s inspection costs are listed below:

	Units Produced			Inspection Costs
January	433			$	6,136
February	383			$	5,642
March	452			$	6,351
April	467			$	6,489
May	409			$	5,892
June	384			$	5,645
July	459			$	6,416
August	410			$	5,905

Management believes that inspection cost is a mixed cost that depends on units produced.

Using the least-squares regression method, the estimate of the fixed component of inspection cost per month is closest to:

Answer 1

	X (units)	Y (Inspection cost)	XY	X2
January	433	$                    6,136	$        26,56,888	1,87,489
February	383	$                    5,642	$        21,60,886	1,46,689
March	452	$                    6,351	$        28,70,652	2,04,304
April	467	$                    6,489	$        30,30,363	2,18,089
May	409	$                    5,892	$        24,09,828	1,67,281
June	384	$                    5,645	$        21,67,680	1,47,456
July	459	$                    6,416	$        29,44,944	2,10,681
August	410	$                    5,905	$        24,21,050	1,68,100
	3397	$                 48,476	$    2,06,62,291	14,50,089

Where,

n = number of month (line items)

Σy = Sum of total inspection costs

Σx = Sum of units

Total cost = Fixed cost + Variable cost

Fixed cost = ( Total cost - Variable cost ) / n

= ( $ 48,476 - $ 34,751.31 ) / 8

= $ 13,724.69 / 8

= $ 17,155.58

Thus, Fixed cost is $ 17,155.58

Working note:

Variable cost = Variable cost per unit * Number of units

= $ 10.23 * 3397

= $ 34,751.31