EXERCISE 5-3 (30 MINUTES)

1.

Month Units

Shipped (X) Shipping

Expense (Y)

January 3 $1,800 February 6 $2,300 March 4 $1,700 April 5 $2,000 May 7 $2,300 June 8 $2,700 July 2 $1,200 Statistical software or a spreadsheet application such as Excel can be used to compute the slope and intercept of the least-squares regression line for the above data. The results are: Intercept (fixed cost) ... $911 Slope (variable cost per unit) ... $218 R

²

... 0.91 Therefore, the cost formula is $911 per month plus $218 per unit shipped or Y = $911 + $218X. Note that the R

²

is 0.91, which means that 91% of the variation in ship-ping costs is explained by the number of units shipped. This is a very high R

²

and indicates a good fit.