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6. Regression analysis

Let

X

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be the cups of coffee sold

And

Y

be the utility expenses

9300

86490000

460

 Month X Y X2 XY Jan. 9300 472 864 9000 0 4389 600 Feb. 9800 510 96040000 4998000 March 10850 524 117722500 5685400 April 9500 460 90250000 4370000 May 440 4092000 June 9000 81000000 4140000 July 8800 452 7 7440000 3977600 Aug. 8600 430 73960000 3698000 Sept. 11000 535 121000000 5885000 Oct. 11620 570 135024400 6623400 Nov. 12000 580 144000000 6960000 Dec. 12400 600 153760000 7440000 Total 122170 6033 1263176900 62259000

The regression line is

Y = a + bX

Where a= fixed cost

b= variable cost per cup

b =

= 0.04

a = – b

= 62.61

Y= 62.61 + 0.04X

Fixed cost = 62.61

Variable cost per cup = 0.04

High – Low method

Sales revenue Utility expenses

High 12400 600

Low 8600 430

Difference 3800 170

Variable cost per cup = 3800/170

= 0.04

Fixed cost = 600 – 12400(Variable cost per cup)

= 45.26

7. Regression method is most appropriate as compare to high low method because it based on all the figures of the data. As shown in above calculation variable cost is almost same but fixed cost is different because high low method based on only extreme values not as a whole.

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