An important application of regression analysis in accountin

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 ($) 400 450 550 600 700 750 3,500 4,500 4,900 5,400 5,900 6,500 Compute b1 and b0 (to 1 decimal). b1 b0 Complete the estimated regression equation (to 1 decimal). y = + x What is the variable cost per unit produced (to 1 decimal)? Compute the coefficient of determination (to 3 decimals).

Solution

A)

Using technology, we get                  
                  
slope = b1 =     7.6   [ANSWER]          
intercept = b0 =    746.6666667   [ANSWER]          
                  
Thus, the regression line is                  
                  
y^ = 746.6666667 + 7.6 x [ANSWER]      

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b)

It is the slope,

b1 = 7.6 [ANSWER]

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c)
                  
Also, getting the correlation,                  
                  
r =    0.979127101              
                  
Thus, the coefficient of determination is                  
                  
r^2 =    0.959 [ANSWER]

In decimal form,

r^2 = 95.9% [ANSWER]