Below are cost and activity data for a particular cost over the last four periods. Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity. Required:
Using the least-squares regression method, estimate the cost formula for this cost.

Question

Below are cost and activity data for a particular cost over the last four periods. Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity.  Required:
Using the least-squares regression method, estimate the cost formula for this cost.

Quizplus · Accepted Answer

The Answer is The solution using Microsoft Excel functions is:
Variable cost = Slope = $3.94
Fixed cost = Intercept = $110.80
Therefore, the cost formula is $110.80 per period plus $3.94 per unit of activity or:
Y = $110.80 + $3.94X
The solution using the formulas in the text is:
n = 4
sumX = 169
sumY = 1,109
sumXY = 46,937
sumX^2 = 7,161
b = [n(sumXY) - (sumX)(sumY)]/[n(sumX^2) - (sumX)^2]
= [4(46,937) - (169)(1,109)]/[4(7,161) - (169)^2]
= $3.94 (rounded to nearest whole cent)
a = [(sumY) - b(sumX)]/n
= [(1,109) - 3.94(169)]/4
= $111 (rounded to nearest whole dollar)
Cost formula: Y = $111 + $3.94X.

Below Are Cost and Activity Data for a Particular Cost