LEAST-SQUARES COST ESTIMATION

Use these data:

Total
Overhead
Some notes! Units Produced Costs
You need to know first the following: Observations X Y
a) Equation for straight line: 1 21,000 213,400
2 22,000 215,000
Y = a + bX 3 20,500 211,900
4 24,500 230,800
5 23,700 221,000
6 25,300 232,500
7 22,300 216,400
Where: 8 21,300 219,000
Y= the value of dependent variable ∑ 180,600 1,760,000
a= a constant term
b= the slope of the line
X= the value of the independent variable (Show your computations here!)
Step 1 ∑XY = a∑X + b∑X2
b) Some formulas: (normal equations) ∑Y = an + b∑X

1st ∑XY = a∑X + b∑X2 Step 2

(eliminate a)
2nd ∑Y = an + b∑X

Where:
∑= "the sum of"
n= number of observations

Step 3 ∑Y = an + b∑X
Solve for a 1,760,000

a8=

a8=
a8=

a=

a=
 LINEST, INTERCEPT & RSQ

(Show your computed values here!)

XY X2 4.1630921517794 126018.2 LINEST
4,481,400,000 441,000,000
4,730,000,000 484,000,000 126018.1947 INTERCEPT
4,343,950,000 420,250,000
5,654,600,000 600,250,000 0.8712485163 RSQ
5,237,700,000 561,690,000
5,882,250,000 640,090,000
4,825,720,000 497,290,000
4,664,700,000 453,690,000
39,820,320,000 4,098,260,000

39,820,320,000 = a 180,600 + b 4,098,260,000 39,820,320,000 = a 180,600 +b

1,760,000 =a8+ b 180,600 1,760,000 = a 8 +b

318,562,560,000 = 1,444,800 a+
317,856,000,000 = 1,444,800 a+
706,560,000 - +
total cost 706,560,000
b = ----------------
total units 169,720,000

b= 4.16

=a 8 + b 180,600

1,760,000 - 4.16 * 180,600

1,760,000 - 751,854.44
1,008,145.56

1,008,145.56 / 8

126,018.19
 SCATTER GRAPH

(Show your scatter graph here!)

235000

230000

225000

220000

4,098,260,000
215000
180,600

32,786,080,000 b
210000
32,616,360,000 b
169,720,000 b
205000

200000
total cost per unit 20000 21000 22000 23000 24000 25000 2
25000 26000