Question

Lacourse Inc.'s inspection costs are listed below:

	Units Produced			Inspection Costs
January	428			$	6,126
February	378			$	5,637
March	447			$	6,341
April	462			$	6,479
May	404			$	5,887
June	379			$	5,640
July	454			$	6,406
August	405			$	5,900

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

S.NO	UNITS PRODUCED	INSPECTION COST	XY	X^2
	X	Y
1	428	6126	2621928	183184
2	378	5637	2130786	142884
3	447	6341	2834427	199809
4	462	6479	2993298	213444
5	404	5887	2378348	163216
6	379	5640	2137560	143641
7	454	6406	2908324	206116
8	405	5900	2389500	164025
TOTAL	3357	48416	20394171	1416319

y = a+bx

y = total cost

b= variable cost

x = level of activity

b =    (8 (20394171) - (3357) (48416) ) / (8 (1416319) - (3357)^2)

b =       (163153368 – 162532512 ) / (11330552-11269449)

     

=                  620856 / 61103

=                 10.161

Total fixed cost (a) can then be computed by substituting the computed b

a =	∑y – b∑x
	n

a =	48416 – (10.161)(3357)
	8

a = (48416 – 34110.48) / 8

a = 1788.19