Professor John Morton has just been appointed chairperson of the Finance Department at Westland University. In reviewing the department’s cost records, Professor Morton has found the following total cost associated with Finance 101 over the last several terms:

Professor Morton knows that there are some variable costs, such as amounts paid to graduate assistants, associated with the course. He would like to have the variable and fixed costs separated for planning purposes.

Required:

1. Using the least-squares regression method, estimate the variable cost per section and the total fixed cost per term for Finance 101.

2. Express the cost data derived in (1) above in the linear equation form Y = a + bX.

3. Assume that because of the small number of sections offered during the Winter Term this year, Professor Morton will have to offer eight sections of Finance 101 during the Fall Term. Compute the expected total cost for Finance 101. Can you see any problem with using the cost formula from (2) above to derive this total cost figure? Explain.

4. Prepare a scattergraph and fit a straight line to the plotted points using the cost formula expressed in (2) above.

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Number of Sections Term Offered Total Cost Fall, last year $10,000 4 Winter, last year $14,000 Summer, last year $7,000 2 Fall, this year $13,000 Winter, this year $9,500 3