The accountant for a large medical testing company is investigating the business' oper
ational costs and would like to determine how much of the costs are 'fixed' those that
must be paid irrespective of daily activities, such as rent and insurance and how much
are 'variable' in terms of the number of medical tests performed eg labour, materials,
waste disposal, etc. The accountant has obtained last year's monthly data on total
costs and the number of tests performed, which is summarised in the following table:
Use a simple linear regression to estimate the company's fixed costs and the price per test
associated with the variable costs. Compute the standard error in both point estimates.
Report all values correct to decimal places, be careful with compound rounding errors.
Managers are bidding for a contract that would result in the company conducting
million medical tests next month. If the company is awarded the contract, assist the
accountant in estimating the expected operational costs for next month, along with an
appropriate interval. Comment on the reliability of the estimates.
