We now describe the steps to be performed in Excel to get this equation.

Step 1. Confirm that the Data Analysis package is installed. Go to the Data tab on the top menu bar and
look for Data Analysis. If Data Analysis appears, you are ready to perform regression analysis. If Data
Analysis does not appear, go to the help button (denoted as a question mark in the upper right-hand
corner of the screen) and type Analysis ToolPak. Look for the Load the Analysis ToolPak option and
follow the instructions given.

Step 2. Enter the data in the spreadsheet. Using a new Excel spreadsheet, enter the data points in two
columns. The monthly data in includes Total Production Costs and Units Produced. Thus use one column
(column A) to enter Total Production Costs data and another column (column B) to enter Units Produced
data.

Step 3. Run the

regression analysis.

Using the same spreadsheet set up in step 2, select Data, Data Analysis, andRegression. A box

appears that requires the input of several items needed to perform regression. Input Y

Range requires that you highlight the y-axis data, including the heading (cells B1 through B13 in

the example shown in step 2). Input X Range requires that you highlight the x-axis data,

including the heading (cells C1 through C13 in the example shown in step 2). Check

the Labels box; this indicates that the top of each column has a heading (B1 and C1). Select New
Workbook; this will put the regression results in a new workbook. Lastly, check the Line Fit

Plots box, then select OK. The result is as follows (note that we made a few minor format

changes to allow for a better presentation of the data).

Step 4. Analyze the output. Here, we discuss key items shown in the regression output provided in step
3.

Cost Equation: The output shows that estimated fixed costs (shown as the Intercept coefficient in cell
B17) total $43,276, and the estimated variable cost per unit (shown as the Units Produced coefficient in
B18) is $53.42. Thus the cost equation is:

Y = $43,276 + $53.42X.
Now it is possible to estimate total production costs given a certain level of production (X). For example,
if Bikes Unlimited expects to produce 6,000 units during August, total production costs are estimated to
be $363,796:

Regression analysis tends to yield the most accurate estimate of fixed and variable costs, assuming there
are no unusual data points in the data set. It is important to review the data set first—perhaps in the
form of a scattergraph—to confirm that no outliers exist.