In: Statistics and Probability
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 | 4,400 |
450 | 5,400 |
550 | 5,800 |
600 | 6,300 |
700 | 6,800 |
750 | 7,400 |
a)
b1=7.6
bo=1646.7
b)
variable cost =7.6
c)
SST=Syy= | 5,648,333.3333 | |
SSE =Syy-(Sxy)2/Sxx= | 233,333.333 | |
SSR =(Sxy)2/Sxx = | 5,415,000.0000 |
Coeffficient of determination R^2 =SSR/SST= | 0.959 |
percentage of the variation in total cost can be explained by the production volume =95.9 %
d)
predicted val=1646.667+500*7.6= | 5447 |