Klitton's Ltd produces a single product.The company's directors want to explore new markets, and they require an accurate analysis of the firm's cost structure for both forecasting and pricing purposes. An attempt to provide this analysis from the aggregation of individual costs has produced a poor correspondence between actual and predicted costs. You are an accountant employed by Klitton's Ltd, and you have been asked to provide a statistical approach to the problem. The financial director has given you the following data:

You obtain the following further information:

The costs from which the averages have been computed consist of the firm's entire costs for the relevant month.

Fixed costs can be assumed to be unaffected by seasonal factors except for harmattan heating. In July and August a supplementary heating system was employed; this cost GHS 10,000 per month to operate.

Question

Estimate Klitton's Ltd's normal fixed and variable cost of production using linear regression.

Note:Kindly show working and calculations

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Period Output (units) July 9,000 August 14,000 September 11,000 October 8,000 1 November 6,000 December 12,000 Average unit cost (GHS) 12.8 13 11.4 12 13 11.7