I. R. Esse Tax Consultants has ‘developed a regression equation to analyze the behavior of its tax return preparation costs (C) as a function of the number of returns prepared (7R). The following equation was developed to estimate tax return preparation costs. Analysts used 24 observations of data for last year, one observation for each of its 24 offices:

C = $112,000 + $1547R C/o oe Required — =, 66 600 12

a. What is the estimated tax return preparation cost for an office that prepares 1,000 tax returns?

b. What problems might arise from using these data?