An important application of regression analysis in accounting is in the estimation of cost. By collecting data
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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.
| Production Volume (units) | Total Cost ($) |
|---|---|
| 400 | 4000 |
| 450 | 5000 |
| 550 | 5400 |
| 600 | 5900 |
| 700 | 6400 |
| 750 | 7000 |
a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume.
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