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 Total Cost (units) ($) 400 4,600 450 5,600 550 6,000 600 6,500 700 750 7,000 7,600 a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. Do not round intermediate calculations. Compute by and bo (to 1 decimal). Do not round intermediate calculations. b₁ bo Complete the estimated regression equation (to 1 decimal). Do not round intermediate calculations. + b. What is the variable cost per unit produced (to 2 decimal)? Do not round intermediate calculations. c. Compute the coefficient of determination (to 3 decimals). Do not round intermediate calculations. Note: report r² between 0 and 1. +2 =0.99 What percentage of the variation in total cost can be explained by the production volume (to 1 decimal)? Do not round intermediate calculations. % d. The company's production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation (to the nearest whole number)? Do not round intermediate calculations. Hint(s) Check My Work
An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing operation. Production Volume Total Cost (units) ($) 400 4,600 450 5,600 550 6,000 600 6,500 700 750 7,000 7,600 a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. Do not round intermediate calculations. Compute by and bo (to 1 decimal). Do not round intermediate calculations. b₁ bo Complete the estimated regression equation (to 1 decimal). Do not round intermediate calculations. + b. What is the variable cost per unit produced (to 2 decimal)? Do not round intermediate calculations. c. Compute the coefficient of determination (to 3 decimals). Do not round intermediate calculations. Note: report r² between 0 and 1. +2 =0.99 What percentage of the variation in total cost can be explained by the production volume (to 1 decimal)? Do not round intermediate calculations. % d. The company's production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation (to the nearest whole number)? Do not round intermediate calculations. Hint(s) Check My Work
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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
Total Cost
(units)
($)
400
4,600
450
5,600
550
6,000
600
6,500
700
750
7,000
7,600
a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. Do not round intermediate calculations.
Compute by and bo (to 1 decimal). Do not round intermediate calculations.
b₁
bo
Complete the estimated regression equation (to 1 decimal). Do not round intermediate calculations.
+
b. What is the variable cost per unit produced (to 2 decimal)? Do not round intermediate calculations.
c. Compute the coefficient of determination (to 3 decimals). Do not round intermediate calculations. Note: report r² between 0 and 1.
+2
=0.99
What percentage of the variation in total cost can be explained by the production volume (to 1 decimal)? Do not round intermediate calculations.
%
d. The company's production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation (to the nearest whole number)? Do not round intermediate calculations.
Hint(s) Check My Work
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