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An important application of regression analysis in accounting is in the estimation of cost. By collecting...

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 4,000
450 5,000
550 5,400
600 5,900
700 6,400
750 7,000
  1. Compute b1 and b0 (to 1 decimal).
    b1  
    b0  

  2. Compute the coefficient of determination (to 3 decimals). Note: report r2 between 0 and 1.
    r2 =  

Homework Answers

Answer #1

The statistical software output for this problem is :

(a)

b1 = 7.6

b0 = 1246.7

(b)

r square = 0.959

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