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 production volumes andtotal cost data for a manufacturing operation.
| Production Volume (units) | Total Cost ($) |
| 400 | 3,900 |
| 450 | 4,900 |
| 550 | 5,300 |
| 600 | 5,800 |
| 700 | 6,300 |
| 750 | 6,900
|
- Compute b1and b0 (to 1decimal).
b1
b0
Complete the estimated regression equation (to 1 decimal).
= + x
- What is the variable cost per unit produced (to 1 decimal)?
$
- 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 bythe production volume (to 1 decimal)?
%
- The company's production schedule shows 500 units must be producednext month. What is the estimated total cost for this operation (tothe nearest whole number)?
$
