Financial performance Sample CBT 2 from 2013 - Task 1.5 regression

Hi All can anyone help with the above question please. We are given the following information :

Production cost for MIN2 are semi variable. company uses regress Y = a+bx

Y total cost,
X unit cost
A fixed element
B variable element

Data :

8000 units 52000 total cost
12000 units 72000 total cost
13500 79500 total cost


Use above data to calculate A and B

Answer A is 12000
Answer B is 5

Any help appreciated
Thank you all

Rosie x
MmeFroggy

Comments

  • coojeecoojee Experienced Mentor Posts: 794Registered
    Ignore the bit about the regression equation, you can use it if you want to but it's basically the high/low technique.

    High 13,500 unit 79,500 cost
    Low 8,000 units 52,000 cost

    Diff 5,500 units 27,500 cost. Unit cost (ie variable element) = 5

    Then plug that back into any of the known levels of production:

    8,000 units x 5 = 40,000 variable
    total cost 52,000
    so fixed cost is the difference, 12,000

    Try it any of the 3 levels of production, it will work
    MmeFroggy
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