Odino chemicals limited are aware that its power costs are semi variable cost and over the last
Question:
Odino chemicals limited are aware that its power costs are semi variable cost and over the last six months these costs have shown the following relationship with a standard measure of output.
Month | Output (standard units) | Total power costs £ 000 |
1 | 12 | 6.2 |
2 | 18 | 8.0 |
3 | 19 | 8.6 |
4 | 20 | 10.4 |
5 | 24 | 10.2 |
6 | 30 | 12.4 |
Required
I} Using the method of least squares, determine an appropriate linear relationship between total power costs and output
ii) If total power costs are related to both output and time (as measured by the number of the month) the following least squares regression equation is obtained
Power costs = 4.42 + (0.82) output + (0.10) month
Where the regression coefficients (i.e. 0.82 and 0.10) have t values 2.64 and 0.60 respectively and coefficient of multiple correlation amounts to 0.976
Compare the relative merits of this fitted relationship with one you determine in (a). Explain (without doing any further analysis) how you might use the data to forecast total power costs in seven months.
Expert Answer:
ANSWER i The linear relationship between total power costs and output is Total power costs 62 08 out... View the full answer
