Question

Problem 1-1.

An important application of regression analysis in accounting is the estimation of costs. By collecting data on volume of production and costs, an accountant can estimate the cost associated with a particular manufacturing volume that can be recovered by the company. Additionally, the accountant would specifically find out “sunk costs” from the manufacturing process (a cost that has already been incurred and cannot be recovered). Consider the example of paper bags manufacturing. Collected data in table bellow show cost of production (thousand $) and volume (units) of bags.

	VolumeProduced	CostofProduction
	480	4.0
	490	5.0
	550	5.4
	620	5.7
Mean	535	5

1-a. Refer to Problem 1.

Calculate coefficient B1

0.01

87.62

8

45.08

1.b. Refer to Problem 1.

Calculate coefficient Bo

-0.7

-740

-281

-0.08

1.c. Refer to Problem 1.

The regression equation for this problem is......

yhat = -281 + 45X

yhat = -0.08 +0.01X

yhat = -740 + 87.62X

yhat = -0.7 + 0.01X

1.d Refer to Problem 1.

Provide an interpretation for the intercept coefficient.

1-e. Refer to Problem 1

Provide an interpretation for the slope coefficient.

Answer 1