An important application of regression analysis in accounting isin the estimation of cost. By collecting data on volume and costand using the least squares method to develop an estimatedregression equation relating volume and cost, an accountant canestimate the cost associated with a particular manufacturingvolume. Consider the following sample of 7 production volumes andtotal cost data for a manufacturing operation.
Production Volume (units) | Total Cost ($) |
400 | 4000 |
450 | 5000 |
550 | 5400 |
600 | 5900 |
700 | 6400 |
750 | 7800 |
800 | 7200 |
- Use these data to estimate a regression equation that could beused to predict the total cost for a given production volume.Intercept ______ and Slope ______
- What is the marginal cost per unit produced? (Remember whatmarginal cost is from Principle of Economics?)
- The company’s production schedule shows 500 units must beproduced next month. What is the estimated total cost for thisoperation?
