Consider Valley Dental’s cost equation results obtained in E5-6 using least-squares regression.

Required:

1. Determine Valley Dental’s contribution margin per unit and contribution margin ratio if it charges \($45\) for each cavity filled.

2. Prepare a contribution margin income statement for October assuming Valley expects to fill 610 cavities during the month.

Data from E5-6

Refer to the information in E5-4 regarding Valley Dental.

Perform a least squares regression using Valley’s activity and cost information and state the linear cost equation (Y = A + BX).
Explain what each component of the cost equation represents.
Do the regression results differ from those obtained using the high-low and scattergraph methods? If so, why?

Data from E5-4

Valley Dental Services is a specialized dental practice whose only service is filling cavities. Valley has recorded the following for the past nine months.

Transcribed Image Text:

Number of Month Cavities Filled Total Cost January February March 625 $2,800 700 2,900 500 2,100 April 425 2,000 May 450 2,200 June 300 1,700 July 375 1,800 August 550 2,400 September 575 2,600