Financial performance Sample CBT 2 from 2013 - Task 1.5 regression

Rosierabbit

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

coojee

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