# Account question

Dee Redd## Small_Company

History of costs | ||||||||||

Services provided | Operating expenses | |||||||||

January | 3,800 | $57,800 | ||||||||

February | 3,200 | $51,300 | ||||||||

March | 3,400 | $52,250 | ||||||||

April | 3,300 | $51,900 | ||||||||

May | 4,100 | $56,400 | ||||||||

June | 3,500 | $53,100 | ||||||||

Required: 1. Find the cost equation for total cost: Total cost = Fixed Cost + Variable Cost*Activity 2. Predict the total cost for 4,000 services 3. Comment on the quality of the prediction. If you used a regression package like the 'Data Analysis' add-in, what was the R2 for the regression and what does that mean? Whether you used a regression package or not,were the actual costs for the months nearest 4,000 services about where they should be using the cost predictions? 4. If you had enough influence over the local economy that you could set prices, at what retail price would you set services if you wished to make $10,000 in a month where there were 4,000 services?

## Slight sketch of how to solve

History of costs | History of costs | |||||||||||||||||||||

Services provided | Operating expenses | Services provided | Operating expenses | a | b | |||||||||||||||||

January | 3,800 | $57,800 | X | Y | (X-Average X) | (Y-Average Y) | a x b | a2 | ||||||||||||||

February | 3,200 | $51,300 | January | 3,800 | $57,800 | (3,800 - Average X) | (57,800 - Average Y) | multiply the two columns | square the first column | |||||||||||||

March | 3,400 | $52,250 | February | 3,200 | $51,300 | |||||||||||||||||

April | 3,300 | $51,900 | March | 3,400 | $52,250 | |||||||||||||||||

May | 4,100 | $56,400 | April | 3,300 | $51,900 | |||||||||||||||||

June | 3,500 | $53,100 | May | 4,100 | $56,400 | |||||||||||||||||

June | 3,500 | $53,100 | ||||||||||||||||||||

Average | Ave(X) | Ave(Y) | Total = | Sum of a x b | Sum of a2 | |||||||||||||||||

Results: | Slope = | Sum of a x b | = | slope | ||||||||||||||||||

Sum of a2 | ||||||||||||||||||||||

Intercept = | Average Y | - (slope x Average X) | Intercept | |||||||||||||||||||

Required: 1. Find the cost equation for total cost: Total cost = Fixed Cost + Variable Cost*Activity 2. Predict the total cost for 4,000 services 3. Comment on the quality of the prediction. If you used a regression package like the 'Data Analysis' add-in, what was the R2 for the regression and what does that mean? Whether you used a regression package or not,were the actual costs for the months nearest 4,000 services about where they should be using the cost predictions? 4. If you had enough influence over the local economy that you could set prices, at what retail price would you set services if you wished to make $10,000 in a month where there were 4,000 services?

First! Find Average Services Provided and Average Operating Expenses

Second! Find the deviations from Ave(x) and Ave(y) for each observation

Three and four! Multiple the two columns and square the first column

To do this by hand.

Five and six! Find the slope and the intercept