Method of Least Squares, Developing and Using the Cost Formula The method of least squares...
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Method of Least Squares, Developing and Using the Cost Formula
The method of least squares was used to develop a cost equation to predict the cost of receiving purchased parts at a video game manufacturer. Ninety-six data points from monthly data were used for the regression. The following computer output was received:
Intercept
147,400
Slope
210
The cost driver used was number of parts inspected.
Required:
1. What is the cost formula?
Total cost of receiving = $ + ( $ )
2. Using the cost formula from Requirement 1, identify each of the following: independent variable, dependent variable, Variable rate per professional hour, and fixed cost per month.
Independent variable
Dependent variable
Variable rate per professional hour
per part inspected
Fixed cost per month
3. Using the cost formula, predict the cost of receiving for a month in which 6,800 parts are inspected.
Total cost of receiving = $
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