Question: 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 Price: $2.99 Solution: The downloadable solution consists of 3 pages This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More 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.
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What is the estimated regression line?Using these estimates, an estimated regression equation is constructed: ŷ = b0 + b1x . The graph of the estimated regression equation for simple linear regression is a straight line approximation to the relationship between y and x.
What is the purpose of regression analysis?Regression analysis is a reliable method of identifying which variables have impact on a topic of interest. The process of performing a regression allows you to confidently determine which factors matter most, which factors can be ignored, and how these factors influence each other.
Why is regression analysis important in business?Regression analysis is all about data. It helps businesses understand the data points they have and use them – specifically the relationships between data points – to make better decisions, including anything from predicting sales to understanding inventory levels and supply and demand.
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What percentage of the variation in total cost can be explained by the production volume?
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