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 and total cost data for a manufacturing operation. Production Volume (Units) Total Cost ($) 400 4000 450 5000 550 5400 600 5900 700 6400 750 7000 The company's production schedule shows 500 units must be produced next month. Predict the total cost for this operation. Where data on production volume and cost were used to develop an estimated regression equation relating production volume and cost for a particular manufacturing operation. Use Alpha= 0.05 to test whether the production volume is significantly related to the total cost. Show the ANOVA table. What is your conclusion?
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
| An important application of |
||||||||||
| Production Volume (Units) | Total Cost ($) | |||||||||
| 400 | 4000 | |||||||||
| 450 | 5000 | |||||||||
| 550 | 5400 | |||||||||
| 600 | 5900 | |||||||||
| 700 | 6400 | |||||||||
| 750 | 7000 | |||||||||
| The company's production schedule shows 500 units must be produced next month. Predict the total cost for this operation. | ||||||||||
| Where data on production volume and cost were used to develop an estimated regression equation relating production volume and cost for a particular manufacturing operation. Use Alpha= 0.05 to test whether the production volume is significantly related to the total cost. Show the ANOVA table. What is your conclusion? |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
