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Category > Management Posted 05 Jan 2018 My Price 9.00

regression equation

Refer to Exercise 21, where data on the production volume x and total cost y for a particular manufacturing operation were used to develop the estimated regression equation Å· = 1246.67+7.6x.

 

a. The company’s production schedule shows that 500 units must be produced next month. What is the point estimate of the total cost for next month?

b. Develop a 99% prediction interval for the total cost for next month.

c. If an accounting cost report at the end of next month shows that the actual production cost during the month was $6000, should managers be concerned about incurring such a high total cost for the month? Discuss.

Exercise 21

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.

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. What is the estimated total cost for this operation?

Answers

Maurice Tutor
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Status NEW Posted 05 Jan 2018 08:01 PM My Price 9.00

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