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.

$\begin{array}{cc}
&\text { Activity } & \text { Cost } \
\text { Period 1}&46 & \$ 292 \
\text {Period 2 }&40 & \$ 271 \
\text {Period 3 }&42 & \$ 279 \
\text {Period 4 }&41 & \$ 267
\end{array}$

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.

$\begin{array}{cc}
&\text { Activity } & \text { Cost } \
\text { Period 1}&46 & \$ 292 \
\text {Period 2 }&40 & \$ 271 \
\text {Period 3 }&42 & \$ 279 \
\text {Period 4 }&41 & \$ 267
\end{array}$

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