Use this information for questions 7 – 10. An analyst examined cost and volume d
ID: 3054979 • Letter: U
Question
Use this information for questions 7 – 10.
An analyst examined cost and volume data for twenty different production runs. It appears there is a linear relationship between volume (x) and cost (y) so the analyst used simple linear regression to find the equation of the relationship to predict cost. The regression results are
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.9910
R Square
0.9820
Adjusted R Square
0.9810
Standard Error
1232.83
Observations
20
ANOVA
df
SS
MS
F
Significance F
Regression
1
1495800034
1495800034
984.17
0.0000
Residual
18
27357466.17
1519859.231
Total
19
1523157500
Coefficients
Standard Error
t Stat
P-value
Intercept
14427
572.6863
25.1924
0.0000
Volume
3.00
0.0956
31.3715
0.0000
7. What is the equation of the cost function?
a. Cost = 14427
b. Cost =3.00 + 14427x
c. Cost = 25.1924 + 31.3715x
d. Cost = 14427 + 3.00x
8. What is the fixed cost?
a. 3.00
b. 1232.83
c. 14427
d. 31.3715
9. What is the variable cost?
a. 3.00
b. 1232.83
c. 14427
d. 31.3715
10. If each unit of this product sells for $10.00, how many units would need to be sold for the company to break even (cover the fixed and variable costs)?
a. 1110
b. 1443
c. 2061
d. 4809
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.9910
R Square
0.9820
Adjusted R Square
0.9810
Standard Error
1232.83
Observations
20
ANOVA
df
SS
MS
F
Significance F
Regression
1
1495800034
1495800034
984.17
0.0000
Residual
18
27357466.17
1519859.231
Total
19
1523157500
Coefficients
Standard Error
t Stat
P-value
Intercept
14427
572.6863
25.1924
0.0000
Volume
3.00
0.0956
31.3715
0.0000
Explanation / Answer
7) Equation of the cost function
Cost = 14427 + 3.00x
8) fixed cost = 14427
9) variable cost = 3
10) Breakeven = 14427/(10-3)
= 2061
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