ACC

EXAMPLE

Least – Squares Regression

Formula of Least –squares

b1= [n(∑ XY) – (∑ X) (∑ Y) ]/ n(∑ X^2) – (∑ X)^2

bo = [(∑ Y) – b (∑ X)] / n

X = level of activity [ independent]

Y = Total fixed cost [dependent]

b1 = variable cost

b 0 = Fixed cost

n = number of observations

∑ = sum of all observations

Illustration

Month	X	Y
Jan	5600	7900
Feb	7100	8500
Mar	5000	7400
April	6500	8200
May	7300	9100
June	8000	9800
July	6200	7800
Total (∑ )	43,700	58,700

Month	X	Y	XY	X^2
Jan	5600	7900	44,240,000	31,360,000
Feb	7100	8500	60,350,000	50,410,000
Mar	5000	7400	37,000,000	25,000,000
April	6500	8200	53,300,000	42,250,000
May	7300	9100	66,430,000	53,290,000
June	8000	9800	78,400,000	64,000,000
July	6200	7800	48,360,000	38,440,000
Total (∑ )	45,700	58,700	388,080,000	304,750,000

b1= [n(∑ XY) – (∑ X) (∑ Y) ]/ n(∑ X^2) – (∑ X)^2

b1= [7 (388,080,000) – (45700) ( 58700)]/ 7(304,750,000) – (45,700)^2

b1 = $ 0.759

bo = (58700) – 0.759 (45,700) / 7

= $3,431

Y = 3431 + 0.759 (X)