# Question

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 ................... 4000

450 ................... 5000

550 ................... 5400

600 ................... 5900

700 ................... 6400

750 ................... 7000

a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume.

b. What is the variable cost per unit produced?

c. Compute the coefficient of determination. What percentage of the variation in total cost can be explained by production volume?

d. The company’s production schedule shows 500 units must be produced next month. Predict the total cost for this operation?

Production Volume (units) Total Cost ($)

400 ................... 4000

450 ................... 5000

550 ................... 5400

600 ................... 5900

700 ................... 6400

750 ................... 7000

a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume.

b. What is the variable cost per unit produced?

c. Compute the coefficient of determination. What percentage of the variation in total cost can be explained by production volume?

d. The company’s production schedule shows 500 units must be produced next month. Predict the total cost for this operation?

## Answer to relevant Questions

Refer to exercise 9 where the following data were used to investigate the relationship between the number of cars in service (1000s) and the annual revenue ($millions) for six smaller car rental companies (auto Rental News ...Refer to exercise 21, where data on production volume and cost were used to develop an estimated regression equation relating production volume and cost for a particular manufacturing operation. Use α = .05 to test whether ...Refer to exercise 21, where data on the production volume and total cost y for a particular manufacturing operation were used to develop the estimated regression equation y = 1246.67 + 7.6x.a. The company’s production ...Data on advertising expenditures and revenue (in thousands of dollars) for the Four Sea-sons Restaurant follow.Advertising Expenditures Revenue1 .................. 192 .................. 324 .................. 446 ...The Toyota Camry is one of the best-selling cars in North America. The cost of a previously owned Camry depends upon many factors, including the model year, mileage, and condition. To investigate the relationship between the ...Post your question

0