Cost Estimation. An important application of regression analysis in accounting is inthe estimation of cost. By collecting data on volume and cost and using the least squaresmethod to develop an estimated regression equation relating volume and cost, an account-ant can estimate the cost associated with a particular manufacturing volume. Consider thefollowing sample of production volumes and total cost data for a manufacturing operation.Production Volume (units)Total Cost ($)400400045050005505400590064006007007507000a. Use these data to develop an estimated regression equation that could be used topredict the total cost for a given production volume.b. What is the variable cost per unit produced?c. Compute the coefficient of determination. What percentage of the variation in totalcost can be explained by production volume?d. The company's production schedule shows 500 units must be produced next month.Predict the total cost for this operation.

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Cost Estimation. 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 account- ant 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 5000 5400 450 550 600 5900 6400 700 750 7000 a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. b. What is the variable cost per unit produced? c. Compute the coefficient of determination. What percentage of the variation in total cost can be explained by production volume? d. The company's production schedule shows 500 units must be produced next month. Predict the total cost for this operation.

Cost Estimation. 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 account- ant 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 5000 5400 450 550 600 5900 6400 700 750 7000 a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. b. What is the variable cost per unit produced? c. Compute the coefficient of determination. What percentage of the variation in total cost can be explained by production volume? d. The company's production schedule shows 500 units must be produced next month. Predict the total cost for this operation.

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Concept explainers

Correlation

Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.

Linear Correlation

A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.

Regression Analysis

Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.

Question

Cost Estimation. 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 account-
ant 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
450
5000
550
5400
5900
6400
600
700
750
7000
a. Use these data to develop an estimated regression equation that could be used to
predict the total cost for a given production volume.
b. What is the variable cost per unit produced?
c. Compute the coefficient of determination. What percentage of the variation in total
cost can be explained by production volume?
d. The company's production schedule shows 500 units must be produced next month.
Predict the total cost for this operation.

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