Question

Exhibit 1

An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes (x) and total cost (y) data for a manufacturing operation.

Production Volume (units)	Total Cost ($)
400	4000
450	5000
550	5400
600	5900
700	6400
750	7000

To answer this question, refer to Exhibit 1 in question 1.

1. How much variation in total cost is explained by production volume?

   		95.87%
   		83.98%
   		35.46%
   		56.67%

2 points   

QUESTION 6

1. To answer this question, refer to Exhibit 1 in question 1.

   What is the value of the coefficient of correlation (to 4 decimals)?

   		0.2219
   		0.9791
   		0.3443
   		0.7577

2 points   

QUESTION 7

1. To answer this question, refer to Exhibit 1 in question 1.

   What is the standard error of b1 (to 2 decimals)?

   		0.21
   		0.45
   		0.79
   		1.21

2 points   

QUESTION 8

1. To answer this question, refer to Exhibit 1 in question 1.

   We would like to test if production volume significantly affects total costs. What is the test statistic from this test (to 2 decimals)?

   		1.35
   		2.01
   		4.69
   		9.63

2 points   

QUESTION 9

1. To answer this question, refer to Exhibit 1 in question 1.

   What is the critical value for the test in the previous question (to 2 decimals)?

   		2.45
   		2.57
   		2.78
   		3.18

2 points   

QUESTION 10

1. To answer this question, refer to Exhibit 1 in question 1.

   What do you conclude about the relationship between production volume and total cost?

   		There is a significant relationship between total cost and production volume.
   		There is no significant relationship between total cost and production.
   		Need more information to answer the question.

Answer 1

The calculation is very lengthy. So, here are the direct answer of each question.

(1.) The variation in total cost is explained by production volume is:

• 95.87%

(6.) The value of the coefficient of correlation is:

• 0.9791

(7.) The standard error of b1 is:

• 0.79

(8.) the test statistic from this test is:

• 9.63

(9.) The critical value for the test is:

• 2.57

(10.) The following can be conclude about the relationship between production volume and total cost:

• There is a significant relationship between total cost and production volume.