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LEAST SQUARES REGRESSION

The least squares regression method is a more accurate way of separating fixed and variable costs and predicting total costs than the high low method.
It is also more involved and complex. But still can be done in a few minutes.

Once there is an equation of the line, then predictions on total costs can be made.

FOLLOW STEPS #1-#7 TO COMPLETE A REGRESSION ANALYSIS IN EXCEL. THEN ANSWER QUESTIONS A G THAT APPEAR AT THE END OF THIS DOCUMENT. YOULL TYPE YOUR ANSWERS TO A-G IN THE CELLS BELOW YOUR REGRESSIONAL ANALYSIS GRAPH. SUBMIT YOUR ONE PAGE EXCEL DOCUMENT.

6)	The following boxes/buttons should be chosen and then choose close.

The closer the R² is to 1, the better predictions your equation can generally make.

At .9834, this is a reasonable equation to make predictions about costs.

Note that this graph did not require you to have your line cross the y-axis. If it did cross the y-axis, the point would be (0, 107.5) because $107.5 is the fixed cost, even at 0 customers. If you would like to elongate the line so that it crosses the y-axis, you can do so as an option.

You will submit your Excel regression analysis graph , which should like the one above. Below your graph in Excel answer Questions A-G.

A) In the above example, what is the variable cost per unit?

B) In the above example, what is the fixed cost.

C) Suppose the level of activity were 10 units. What is the estimated total cost using the regression equation?

D) The general terms of units and costs were used. What specific units and costs, might these terms represent? (Infinite answers)

E - 1) Use these same Units and Costs to determine a total cost formula using the High Low Method.

E-2) Suppose the level of activity were 10 units. What is the estimated total cost using the High Low Method?

F) In percentage terms by how much do the Regression and High Low methods differ from each other. Please format your response as a % and use one digit to the right of the decimal point. (Ex 12.5% or 0.8% or 7.7%) Two answers are possible; they differ by very little.

G) Which method for separating fixed/variable costs and for determining an equation to predict costs do you preferhigh low or regression? Why? (no right/wrong response)

(16 pts)

LEAST SQUARES REGRESSION The least squares regression method is a more accurate way of separating fixed and variable costs and predicting total costs than the high low method. It is also more involved and complex. But still can be done in a few minutes. Once there is an equation of the line, then predictions on total costs can be made. 1) Enter the information in Excel as shown here. WEEK 1 2 3 4 5 6 2) UNITS 8 5 10 4 6 9 $ $ $ $ $ $ COST 270 200 310 190 240 290 Highlight the data in the UNITS and COST columns 3) Click on the Insert tab and choose the graph/Chart labeled Scatter , then "Scatter with only Markers" 5) Right click on one of the data points (the blue diamonds) and choose Add Trendline 6) The following boxes/buttons should be chosen and then choose close. !" #$%&'() !" *!"+( $,-". / 0 $, .&' %! .&' +$,' *1!%%'% .&' /2$% !. 1'3"$1'( &' '2/4-+' $, .&' ,'2. %.'- (!'% ,!. %&!# .&' +$,' *1!%%$,5 .&' /2$% 7) 2 You have an equation and an R , a Correlation Coefficient $350 y = 20.357x + 107.5 R = 0.9834 $300 $250 $200 Series1 $150 Linear (Series1) $100 $50 $0 2 4 6 8 10 12 The closer the R2 is to 1, the better predictions your equation can generally make. At .9834, this is a reasonable equation to make predictions about costs. Note that this graph did not require you to have your line cross the y-axis. If it did cross the y-axis, the point would be (0, 107.5) because $107.5 is the fixed cost, even at 0 customers. If you would like to elongate the line so that it crosses the y-axis, you can do so as an option. You will submit your Excel regression analysis graph , which should like the one above. Below your graph in Excel answer Questions A-G. A) In the above example, what is the variable cost per unit? B) In the above example, what is the fixed cost. C) Suppose the level of activity were 10 units. What is the estimated total cost using the regression equation? D) The general terms of \"units\" and \"costs\" were used. What specific units and costs, might these terms represent? (Infinite answers) E - 1) Use these same Units and Costs to determine a total cost formula using the High Low Method. 1) Enter the information in Excel as shown here. WEEK 1 2 3 4 5 6 UNITS 8 5 10 4 6 9 $ $ $ $ $ $ COST 270 200 310 190 240 290 E-2) Suppose the level of activity were 10 units. What is the estimated total cost using the High Low Method? F) In percentage terms by how much do the Regression and High Low methods differ from each other. Please format your response as a % and use one digit to the right of the decimal point. (Ex 12.5% or 0.8% or 7.7%) Two answers are possible; they differ by very little. G) Which method for separating fixed/variable costs and for determining an equation to predict costs do you preferhigh low or regression? Why? (no right/wrong response) (16 pts) LEAST SQUARES REGRESSION The least squares regression method is a more accurate way of separating fixed and variable costs and predicting total costs than the high low method. It is also more involved and complex. But still can be done in a few minutes. Once there is an equation of the line, then predictions on total costs can be made. FOLLOW STEPS #1-#7 TO COMPLETE A REGRESSION ANALYSIS IN EXCEL. THEN ANSWER QUESTIONS A -G THAT APPEAR AT THE END OF THIS DOCUMENT. YOU'LL TYPE YOUR ANSWERS TO A-G IN THE CELLS BELOW YOUR REGRESSIONAL ANALYSIS GRAPH. SUBMIT YOUR ONE PAGE EXCEL DOCUMENT. 6) The following boxes/buttons should be chosen and then choose close. If you wished, you could input a 4 in the Backward BOX so the line crosses the yaxis. Not required. The example in the next step does not show the line crossing the y-axis. The closer the R2 is to 1, the better predictions your equation can generally make. At .9834, this is a reasonable equation to make predictions about costs. Note that this graph did not require you to have your line cross the y-axis. If it did cross the y-axis, the point would be (0, 107.5) because $107.5 is the fixed cost, even at 0 customers. If you would like to elongate the line so that it crosses the y-axis, you can do so as an option. You will submit your Excel regression analysis graph , which should like the one above. Below your graph in Excel answer Questions A-G. A) In the above example, what is the variable cost per unit? B) In the above example, what is the fixed cost. C) Suppose the level of activity were 10 units. What is the estimated total cost using the regression equation? D) The general terms of \"units\" and \"costs\" were used. What specific units and costs, might these terms represent? (Infinite answers) E - 1) Use these same Units and Costs to determine a total cost formula using the High Low Method. E-2) Suppose the level of activity were 10 units. What is the estimated total cost using the High Low Method? F) In percentage terms by how much do the Regression and High Low methods differ from each other. Please format your response as a % and use one digit to the right of the decimal point. (Ex 12.5% or 0.8% or 7.7%) Two answers are possible; they differ by very little. G) Which method for separating fixed/variable costs and for determining an equation to predict costs do you preferhigh low or regression? Why? (no right/wrong response) (16 pts)