Method of Least Squares, Developing and Using the Cost Formula

The method of least squares was used to develop a cost equation to predict the cost of receiving purchased parts at a video game manufacturer. Ninety-six data points from monthly data were used for the regression. The following computer output was received:

Intercept	205,400
Slope	405

The cost driver used was number of parts inspected.

Required:

1. What is the cost formula?

Total cost of receiving = $ + ( $ Number of parts inspected )

2. Using the cost formula from Requirement 1, identify each of the following: independent variable, dependent variable, Variable rate per professional hour, and fixed cost per month.

Independent variable	Number of parts inspected
Dependent variable	Total cost of receiving
Variable rate per professional hour	$405	per part inspected
Fixed cost per month	$205,400

3. Using the cost formula, predict the cost of receiving for a month in which 7,200 parts are inspected.

Total cost of receiving = $