EXERCISE 5-12 (30 MINUTES)

1.

Term Number of Sections

Offered (X) Total Cost (Y)

Fall, last year ... 4 $10,000 Winter, last year... 6 $14,000 Summer, last year .... 2 $7,000 Fall, this year... 5 $13,000 Winter, this year... 3 $9,500 A spreadsheet application such as Excel or a statistical software package can be used to compute the slope and intercept of the least-squares re-gression line for the above data. The results are: Intercept (fixed cost) ... $3,700 Slope (variable cost per unit) ... $1,750 R

²

... 0.95 Therefore, the variable cost is $1,750 per section and the fixed cost is $3,700 per term. Note that the R

²

is 0.95, which means that 95% of the variation in cost is explained by the number of sections. This is a very high R

²

and indi-cates a very good fit.