In: Statistics and Probability
An important application of regression analysis in accounting is
in the estimation of cost. By collecting...
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 |
- Compute b1 and b0 (to 1
decimal).
b1
b0
Complete the estimated regression equation (to 1 decimal).
yhat = ____ + _____ x
- What is the variable cost per unit produced (to 1
decimal)?
$
- 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)?
%
- 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)?