Question

Regression analysis is often used in accounting to estimate costs. 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. The following sample of production volumes and total cost data for a manufacturing operation was collected:

Production Volume (units)	Total Cost ($)
400	4000
450	5000
550	5400
625	5900
700	6800
750	7000

Use Excel and the MegaStat add-in to answer the following questions.

What percent of the variation in total cost can be explained by production volume? Report your answer to 4 decimal places, using conventional rounding rules.

ANSWER:      %

The company’s production schedule shows 575 units must be produced next month. What is the predicted total cost for this operation? Report your answer to 2 decimal places, using conventional rounding rules.

ANSWER:      $

What is the 98% prediction interval for the total cost for next month, when 575 units must be produced? Report your answer to 2 decimal places, using conventional rounding rules.

ANSWER:      Lower confidence limit =              Upper confidence limit =

What is the 98% confidence interval for the mean total cost for all months where 575 units must be produced? Report your answer to 2 decimal places, using conventional rounding rules.

ANSWER:      Lower confidence limit =              Upper confidence limit =

Answer 1

The statistical software output for this problem is:

Hence,

Percent of variation explained = 96.3352 %

Predicted total cost = $ 5649.84

98% predicted interval:

Lower confidence limit = $ 4669.10

Upper confidence limit = $ 6630.58

98% confidence interval:

Lower confidence limit = $ 5278.98

Upper confidence limit = $ 6020.69