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 4000 500 4400 600 5200 700 5700 800 6300 900 6800 The data on the production volume a and total cost y for particular manufacturing operation were used to develop the estimated regression equation ŷ = 1648.57 + 5.77z. a. The company's production schedule shows that 850 units must be produced next month. Predict the total cost for next month. (to 2 decimals) ý* = b. Develop a 98% prediction interval for the total cost for next month. (to 2 decimals) 8 t-value (to 3 decimals) Spred (to 2 decimals) Prediction Interval for an individual Value next month ) (to whole number) c. If an accounting cost report at the end of next month shows that the actual production cost during the month was $6,000, should managers be concerned about incurring such a high total cost for the month? Discuss. Based on one month, $6,000 - Select your answer v outside the upper limit of the prediction interval. A sequence of five to seven months with consistently high costs should cause concern.
An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing operation. Production Volume (units) Total Cost ($) 400 4000 500 4400 600 5200 700 5700 800 6300 900 6800 The data on the production volume a and total cost y for particular manufacturing operation were used to develop the estimated regression equation ŷ = 1648.57 + 5.77z. a. The company's production schedule shows that 850 units must be produced next month. Predict the total cost for next month. (to 2 decimals) ý* = b. Develop a 98% prediction interval for the total cost for next month. (to 2 decimals) 8 t-value (to 3 decimals) Spred (to 2 decimals) Prediction Interval for an individual Value next month ) (to whole number) c. If an accounting cost report at the end of next month shows that the actual production cost during the month was $6,000, should managers be concerned about incurring such a high total cost for the month? Discuss. Based on one month, $6,000 - Select your answer v outside the upper limit of the prediction interval. A sequence of five to seven months with consistently high costs should cause concern.
Elementary Linear Algebra (MindTap Course List)
8th Edition
ISBN:9781305658004
Author:Ron Larson
Publisher:Ron Larson
Chapter2: Matrices
Section2.CR: Review Exercises
Problem 90CR
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Transcribed Image Text:An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation
relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing
operation.
Production Volume (units)
Total Cost ($)
400
4000
500
4400
600
5200
700
5700
800
6300
900
6800
The data on the production volume a and total cost y for particular manufacturing operation were used to develop the estimated regression equation ý = 1648.57 + 5.77z.
a. The company's production schedule shows that 850 units must be produced next month. Predict the total cost for next month.
ý* =
(to 2 decimals)
b. Develop a 98% prediction interval for the total cost for next month.
(to 2 decimals)
t-value
(to 3 decimals)
Spred
(to 2 decimals)
Prediction Interval for an individual Value next month
) (to whole number)
c. If an accounting cost report at the end of next month shows that the actual production cost during the month was $6,000, should managers be concerned about incurring such a high total cost for the
month? Discuss.
Based on one month, $6,000 - Select your answer
v outside the upper limit of the prediction interval. A sequence of five to seven months with consistently high costs should cause concern.
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