Home For AAT student members AQ 2016 Professional Diploma in Accounting Management Accounting: Decisions and Control

Linear regression

I am really struggling with linear regression, every time i see that formula (Y = a + (bX)) i panic.

I don't understand this question on a mock exam at all, I got totally lost down a rabbit hole and just put random stuff in. The main part was the waste kg at the bottom, i tried to use the high low method to find the variable and fixed element- (23,650.00-23,256.25) / (q4-q1) but i have no idea now how they got £10,000 as the fixed element and 5.25 for the variable i'm just not getting it.

any help would be appreciated. attached question and my incorrect answers.

thanks

Comments

  • Pian32Pian32 MAAT Posts: 337
    So I'm reading through the whole question. First of all you want to have another look at the question:

    What are the Quarterly forecasts for 20X4 in whole kgs?

    You've used the correct method but the wrong x values remember X=0 is q1 of 20X0.

    Following on from that the waste produced in q1 20X2

    =2100+25x (x=9)

    =2100 + 25 *9 = 2325 kg

    and the waste produced in q4 of 20X2 (x=12) (There is a typoin the answer box it shouldn't say cost)

    =2100+25* 12 = 2400 kg

    What are the values of a and b in the cost equation?

    Find b first:

    b is the gradient of the line so you need to do (Change in Y)/(Change in x)

    Change in Y = 23650-23256.25 = 393.75
    Change in x = 2400-2325 = 75 (X in this question is number of kg of waste not the quarter number.)

    b = 5.25

    To find a use the q1 figures

    23256.25 = a + 5.25*2325

    a = 11050 (Are you sure they got 10,000?)

    Check in q4

    11050 + 5.25 * 2400 = 23650.



    For linear regression take the following steps:

    Identify what Y and X are. (Other letters could be used)
    Find the change in Y and change in X
    Use this to find b
    Take b and put into equation for a value of x where you already know the y value.
    Rearrange to find a
    Check using the other set of x and y values.

    Make sure you redefine y and x if the subject of the question changes (In this question x started as quarters but the later parts it was kg)
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