Delreal Inc.'s inspection costs are listed below:
Management believes that inspection cost is a mixed cost that depends on the number of units produced. Using the least-squares regression method, the estimates of the variable and fixed components of inspection cost would be closest to:
A) $20.27 per unit plus $5,905 per month
B) $44.44 per unit plus $10,867 per month
C) $20.68 per unit plus $5,807 per month
D) $20.57 per unit plus $5,837 per month

Question

Delreal Inc.'s inspection costs are listed below: 
Management believes that inspection cost is a mixed cost that depends on the number of units produced. Using the least-squares regression method, the estimates of the variable and fixed components of inspection cost would be closest to:
A) $20.27 per unit plus $5,905 per month 
B) $44.44 per unit plus $10,867 per month 
C) $20.68 per unit plus $5,807 per month 
D) $20.57 per unit plus $5,837 per month

Quizplus · Accepted Answer

Using the least-squares regression method, the formula for mixed cost is:

Y = a + bX

Where:
Y = Total inspection cost
a = Fixed cost component
b = Variable cost component per unit of production
X = Number of units produced

Using the given data in the table, we can plot the data on a graph and perform a regression analysis to estimate the fixed and variable components of inspection cost.

Using the regression equation, we get:

Y = $5,836.96 + $20.57X

Therefore, the estimate of variable cost per unit of production is $20.57, and the fixed cost component is $5,836.96.

Thus, the closest estimate is option D, which states that the variable cost per unit is $20.57, and the fixed cost is $5,837 per month.

Delreal Inc.'s Inspection Costs Are Listed Below