Tutorial for Users » Training Reference: Finance » (a) Cost Estimation with Linear Regression

(a) Cost Estimation using Linear Regression

Johnson’s Chair Company has experienced the following costs for the first 6 months of the year:

# Chairs Made
5,000
5,500
4,800
5,300
4,950
5,150
Total Costs
$120,000
$122,100
$118,540
$122,400
$119,100
$124,200

What estimate would a linear regression equation produce for Johnson’s fixed and variable cost? How good is the fit of the linear regression line generated? What are the total costs predicted if 5,400 chairs were to be made? If the total costs were $125,000, how many chairs would you estimate had been produced?

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Updated On: 13.03.01

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