Page 22 - Microsoft Word - 00 P1 IW Prelims.docx

Chapter 2

Linear regression

5.1 What is it?

Based on historical data for two variables (e.g. costs and volume), this uses a
formula to create an equation for estimating future trends in data.

It calculates a straight line relationship between the variables (x and y) which has
three elements:

y = a + bx

This formula can be used to calculate
values for y based on input data for x

and

b = The variable increase or decrease in y for
each change in x

a = A fixed element that doesn’t change,
regardless of any change in x

16