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What is the variable cost per unit produced

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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 pro- duction 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

a. Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume.

b. What is the variable cost per unit produced?

c. Compute the coefficient of determination. What percentage of the variation in total cost can be explained by production volume?

d. The company's production schedule shows 500 units must be produced next month. Predict the total cost for this operation?

Reference no: EM132474419

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