Practice Assessment 2 Q1.5 (b)

mcd

Production costs for product are semi variable. Company uses regression formula y=a + bx to forecast costs where:

y=total costs
x=units
a=fixed element
b=variable element

Data has been gathered on previous costs:

Units Total Cost
(x) (y)

8000 52000
12000 72000
13500 79500

Using the data provided and the regression formula calculate the values of a and b?

Can anyone help on this can't seem to arrive at the correct answer?

Thanks

Mike

Adele69

I think its like High Low where you subtract one set of x and y from the other to work out the variable b and from this you can get the fixed a

y = a + bx
(72000- 52000) = (a-a) + (12000b - 8000b)
20000 = 4000b
therefore b = 5

79500 = a + (5 x 13500)
79500 = a + 67500
therefore a = 12000

mcd

Great, thank you for your help!