Professor John Morton has just been appointed chairperson of the Finance Department at Westland University. In reviewing the department’s cost records, Professor Morton found the following total cost associated with Finance 101 over the last five terms: Term Number of Sections Offered Total Cost Fall, last year 7 $ 13,500 Winter, last year 3 $ 8,000 Summer, last year 6 $ 12,000 Fall, this year 2 $ 6,500 Winter, this year 4 $ 10,000 Professor Morton knows there are some variable costs, such as amounts paid to graduate assistants, associated with the course. He would like to have the variable and fixed costs separated for planning purposes. Required: 2-a. Using the least-squares regression method, estimate the variable cost per section and the total fixed cost per term for Finance 101. 2-b. Express these estimates in the form Y = a + bX. 3-a. Assume because of the small number of sections offered during the Winter Term this year, Professor Morton will have to offer ten sections of Finance 101 during the Fall Term. Compute the expected total cost for Finance 101. 3-b. Can you see any problem with using the cost formula from part (2) to derive this total cost figure
Professor John Morton has just been appointed chairperson of the Finance Department at Westland University. In reviewing the department’s cost records, Professor Morton found the following total cost associated with Finance 101 over the last five terms:
| Term | Number of Sections Offered | Total Cost |
|---|---|---|
| Fall, last year | 7 | $ 13,500 |
| Winter, last year | 3 | $ 8,000 |
| Summer, last year | 6 | $ 12,000 |
| Fall, this year | 2 | $ 6,500 |
| Winter, this year | 4 | $ 10,000 |
Professor Morton knows there are some variable costs, such as amounts paid to graduate assistants, associated with the course. He would like to have the variable and fixed costs separated for planning purposes.
Required:
2-a. Using the least-squares regression method, estimate the variable cost per section and the total fixed cost per term for Finance 101.
2-b. Express these estimates in the form Y = a + bX.
3-a. Assume because of the small number of sections offered during the Winter Term this year, Professor Morton will have to offer ten sections of Finance 101 during the Fall Term. Compute the expected total cost for Finance 101.
3-b. Can you see any problem with using the cost formula from part (2) to derive this total cost figure?
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