Question

Refer to the information from Exercise 18-6. Use spreadsheet software to use ordinary least-squares regression to estimate the cost equation, including fixed and variable cost amounts.

Short answer

The fixed cost is$2,500.

The variable cost is $1.50 per unit.

Step-by-step solution

Definition of Fixed Cost

The cost incurred by the business entity that will remain unchanged over each activity level is known as a fixed cost. Such cost is not directly associated with the production process but assists in the production process.

Estimating cost components

Suppose the number of units sold is X. The cost equation will be:

$\mathbf{\text{Totalcost}}\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{5}\mathit{x}$