Page 49 - BA2 Integrated Workbook - Student 2017

Analysing and predicting costs

n∑xy – (∑x)(∑y) (4 × 1,877.5) – (45 × 163.9) 134.5
b = ——————— = ———————————— = ——— = 2.27
2
2
2
n∑x – (∑x) (4 × 521) − 45 59
So our variable cost per unit is $2.27. Using the high-low method, our answer was
$2.30.

a = y − ̅ b x ̅ = (163.9 ÷ 4) − 2.27 × (45 ÷ 4) = 15.438

So our fixed cost is $15,438. Using the high-low method, our answer was $15,000.

Regression uses all of the observations rather than just the highest and lowest so
gives a better estimation of a and b.

TYU 3

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