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 4,900 450 5,900 550 6,300 600 6,800 700 7,300 750 7,900

Compute b1 and b0 (to 1 decimal).

b1 b0 Complete the estimated regression equation (to 1 decimal).y= + 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)? $

True or False Questions

If the unit cost remains constant, there is no difference in the value of stock among actual cost, FIFO, LIFO, and weighted average cost methods.?

LIFO is often expressly prohibited, especially when it would artificially reduce tax liabilities.?

Consolidating is the process where small loads from different suppliers are combined to give full vehicle loads for delivery to customers?

The main problems with quantitative forecasts are subjective views and are not as reliable as quantitative methods.?

We should keep an outlier if we can explain the reasons behind it.?

Coefficient of correlation can range from −∞ ??+∞.?

The parameters in exponential smoothing are selected to minimize the sum of errors.?

On a plot of forecast errors, a trend line signals there is a trend not accounted for in the forecast model?

Refer to Questions 2 and 3. The land for the factory will cost $640,000 . The factory will cost $8,440,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $260,000 . There is a 70% probability that the factory's net operating cash flows will be $1,169,836 ; however, there is a 30% chance that net cash flows will only be $730,326 . You may assume that net operating cash flows are received at the end of each year.

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(question 2)

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QUESTION 3

People in the aerospace industry believe the cost of a space project is a function of the mass of the major object being sent into space. Use the following data to develop a regression model to predict the cost of a space project by the mass of the space object. Determine r² and s_e.

*(Do not round the intermediate values. Round your answers to 4 decimal places.)
**(Round the intermediate values to 4 decimal places. Round your answer to 3 decimal places.)

2) For a least squares regression line, the sum of the residuals is __________.

a) sometimes positive and sometimes negative

b) always zero

c) always positive

d) always negative

3) In the regression equation, y = 2.164 + 1.3657x, n = 6, the mean of x is 8.667, SS_xx = 89.333 and S_e = 3.44. A 95% confidence interval for the average of y when x = 8 is _________.

a) (3.56, 22.62)

b) (10.31, 15.86)

c) (9.13, 17.05)

d) (12.09, 14.09)

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 4,900

450 5,900

550 6,300

600 6,800

700 7,300

750 7,900

Compute b1 and b0 (to 1 decimal). b1 b0 Complete the estimated regression equation (to 1 decimal). ŷ = + 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)? $

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 7 production volumes and total cost data for a manufacturing operation.

1. Use these data to estimate a regression equation that could be used to predict the total cost for a given production volume. Intercept ______ and Slope ______
2. What is the marginal cost per unit produced? (Remember what marginal cost is from Principle of Economics?)
3. The company’s production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation?

An important application of regression in manufacturing is the estimation of cost of production. Based on DATA (see chart below) from Ajax Widgets relating cost (Y) to volume (X), what is the cost per widget?

A: 8.75

B. 7.54

C: None of the answers are correct

D: 8.21

E. 7.38

The customer and the oversight committee of the project indicated that the technology investment cost of the project is $25,000.00. They foresaw a consistent recurring cost of $7,500 in using the technology with an expected discount rate of 11% within a 5-year period. They also worked out their forecasted benefits as $30,000.00, $35,000.00, $40,000, $45,000.00 and $50,000.00 in the 5-year period.

Conduct a 5-year cost/benefit analysis by completing all the following items:

1. Create an Excel spreadsheet in common format.
2. Explain the breakeven period for the project, including
a. What breakeven period means,
b. What different types values are obtained for this project, and
c. What these values mean to the customer (Explain what breakeven period is and how
your answer is doing what it does for the customer).

3. Explain the return on investment for the project, including
a. What return on investment means,
b. What its value is for this project and how the value means to the customer, and
c. Whether the project is a worthwhile investment and the project should be continued
or not

Suppose that for a typical FedEx package delivery, the cost of the shipment is a function of the weight of the package. You find out that the regression equation for this relationship is (cost of delivery) = 0.728*(weight) + 5.49. If a package you want to ship weighs 13.753 ounces and the true cost of the shipment is $12.229, the residual is -3.273. Interpret this residual in terms of the problem.

Question 5 options:

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.

1. Compute b₁ and b₀ (to 1 decimal).
   b₁  
   b₀  
   
   Complete the estimated regression equation (to 1 decimal).
   =  +  x
   
2. What is the variable cost per unit produced (to 1 decimal)?
   $
   
3. Compute the coefficient of determination (to 3 decimals). Note: report r²between 0 and 1.
   r² =  
   
   What percentage of the variation in total cost can be explained by the production volume (to 1 decimal)?
   %
   
4. 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)?
   $