66
Cost Behavior: Analysis and Use
Cost Behavior: Analysis and Use
Learning Objective 1
Understand how fixed and Understand how fixed and variable costs behave and variable costs behave and how to use them to predict how to use them to predict
costs.costs.
Summary of Variable and Fixed Cost Behavior
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remainsproportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed cost remains thesame even when the activity Fixed cost per unit goes
Fixed level changes within the down as activity level goes up. relevant range.
A variable cost is a cost whose total dollar amount varies in direct proportion to changes
in the activity level.
Types of Cost Behavior Patterns – Variable
The Activity Base (also called a cost driver)
A measure of what causes the
incurrence of a variable cost
A measure of what causes the
incurrence of a variable cost
Unitsproduced
Unitsproduced
Miles drivenMiles driven
Machine hours
Machine hours
Labor hoursLabor hours
Minutes Talked
Tot
al O
vera
ge
Cha
rges
on
Cel
l P
hone
Bill
True Variable Cost – An Example
As an example of an activity base, consider overage charges on a cell phone bill. The activity base is the number of minutes used above the
allowed minutes in the calling plan.
Summary of Variable and Fixed Cost Behavior
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remainsproportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed cost remains thesame even when the activity Fixed cost per unit goes
Fixed level changes within the down as activity level goes up. relevant range.
Variable costs remain constant if expressed on a per unit basis.
Types of Cost Behavior Patterns – Variable
Minutes Talked
Per
Min
ute
Ove
rage
Cha
rge
Variable Cost Per Unit – An Example
Referring to the cell phone example, the cost per overage minute is constant, for example 45 cents per
overage minute.
Extent of Variable CostsThe proportion of variable costs differs across organizations.
For example . . .
A public utility like Florida A public utility like Florida Power and Light,Power and Light,
with large investments in with large investments in equipment, will tend to have equipment, will tend to have
fewer fewer variable costs.variable costs.
A public utility like Florida A public utility like Florida Power and Light,Power and Light,
with large investments in with large investments in equipment, will tend to have equipment, will tend to have
fewer fewer variable costs.variable costs.
A manufacturing companyA manufacturing companylike Black and Deckerlike Black and Deckerwill often have will often have manymany
variable costs.variable costs.
A manufacturing companyA manufacturing companylike Black and Deckerlike Black and Deckerwill often have will often have manymany
variable costs.variable costs.
A merchandising companyA merchandising companylike Wal-Martlike Wal-Mart
usually has a usually has a highhighproportionproportion of variable costs, of variable costs,
like cost of sales.like cost of sales.
A merchandising companyA merchandising companylike Wal-Martlike Wal-Mart
usually has a usually has a highhighproportionproportion of variable costs, of variable costs,
like cost of sales.like cost of sales.
Some service companies Some service companies have have highhigh variable costs, variable costs,
while other service while other service companies have companies have highhigh
fixed costs.fixed costs.
Some service companies Some service companies have have highhigh variable costs, variable costs,
while other service while other service companies have companies have highhigh
fixed costs.fixed costs.
Examples of Variable Costs
1. Merchandising companies – cost of goods sold.
2. Manufacturing companies – direct materials, direct labor, and variable overhead.
3. Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing.
4. Service companies – supplies, travel, and clerical.
1. Merchandising companies – cost of goods sold.
2. Manufacturing companies – direct materials, direct labor, and variable overhead.
3. Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing.
4. Service companies – supplies, travel, and clerical.
Volume
Cos
t
True Variable Costs
The amount of a true variable cost used during the period varies in direct proportion to the activity level. The overage charge on a cell phone bill was one example of a true variable cost.
Direct material is another example of a cost that behaves in a true variable pattern.
Step-Variable Costs
A step-variable coststep-variable cost is a resource that is obtainable only in large chunks (such as maintenance workers) and whose costs change only in response to fairly
wide changes in activity.
Volume
Cos
t
Step-Variable Costs
Small changes in the level of production are not likely to have any effect on the number of
maintenance workers employed.
Small changes in the level of production are not likely to have any effect on the number of
maintenance workers employed.
Volume
Cos
t
Step-Variable Costs
Volume
Cos
t
Only fairly wide changes in the activity level will cause a change in the
number of maintenance workers employed.
Only fairly wide changes in the activity level will cause a change in the
number of maintenance workers employed.
RelevantRange
A straight line closely
approximates a curvilinear
variable cost line within the
relevant range.
A straight line closely
approximates a curvilinear
variable cost line within the
relevant range.
Activity
Tot
al C
ost
Economist’sCurvilinear Cost
Function
The Linearity Assumption and the Relevant Range
Accountant’s Straight-Line Approximation (constant
unit variable cost)
Summary of Variable and Fixed Cost Behavior
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remainsproportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed costs remain thesame even when the activity Fixed cost per unit goes
Fixed level changes within the down as activity level goes up. relevant range.
A fixed cost is a cost whose total dollar amount remains constant as the activity level
changes.
Types of Cost Behavior Patterns – Fixed
Number of Minutes Used within Monthly Plan
Mon
thly
Bas
ic
Cel
l Pho
ne B
illTotal Fixed Cost – An Example
For example, your cell phone bill probably includes a fixed amount related to the total minutes allowed in
your calling plan. The amount does not change when you use more or less allowed minutes.
Cost In Total Per Unit
Variable Total variable cost is Variable cost per unit remainsproportional to the activity the same over wide ranges
level within the relevant range. of activity.
Total fixed costs remain thesame even when the activity Average fixed costs per unit
Fixed level changes within the decrease as the activity relevant range. level increases.
Average fixed costs per unit decrease as the activity level increases.
Types of Cost Behavior Patterns – Fixed
Number of Minutes Used within Monthly Plan
Cos
t Per
Cel
l Pho
ne C
all
Fixed Cost Per Unit Example
For example, the fixed cost per minute used decreases as more allowed minutes are used.
ExamplesAdvertising and Research and Development
ExamplesAdvertising and Research and Development
ExamplesDepreciation on Buildings and Equipment and Real
Estate Taxes
ExamplesDepreciation on Buildings and Equipment and Real
Estate Taxes
Types of Fixed Costs
DiscretionaryMay be altered in the short-term by current managerial decisions
DiscretionaryMay be altered in the short-term by current managerial decisions
CommittedLong-term, cannot be
significantly reduced in the short term.
CommittedLong-term, cannot be
significantly reduced in the short term.
The Trend Toward Fixed Costs
The trend in many industries is toward greater fixed costs relative to variable costs.
As machines take overAs machines take overmany mundane tasksmany mundane taskspreviously performedpreviously performed
by humans, by humans, ““knowledge workersknowledge workers””
are demanded forare demanded fortheir minds rathertheir minds rather
than their muscles.than their muscles.
As machines take overAs machines take overmany mundane tasksmany mundane taskspreviously performedpreviously performed
by humans, by humans, ““knowledge workersknowledge workers””
are demanded forare demanded fortheir minds rathertheir minds rather
than their muscles.than their muscles.
Knowledge workersKnowledge workerstend to be salaried,tend to be salaried,highly-trained andhighly-trained and
difficult to replace. Thedifficult to replace. Thecost of compensatingcost of compensating
these valued employeesthese valued employeesis is relatively fixedrelatively fixed
rather than variable.1rather than variable.1
Knowledge workersKnowledge workerstend to be salaried,tend to be salaried,highly-trained andhighly-trained and
difficult to replace. Thedifficult to replace. Thecost of compensatingcost of compensating
these valued employeesthese valued employeesis is relatively fixedrelatively fixed
rather than variable.1rather than variable.1
Is Labor a Variable or a Fixed Cost?The behavior of wage and salary costs can differ across countries, depending on labor regulations,
labor contracts, and custom.
In France, Germany, China, and Japan, management has little flexibility in adjusting the size of the labor force.
Labor costs are more fixed in nature.
In France, Germany, China, and Japan, management has little flexibility in adjusting the size of the labor force.
Labor costs are more fixed in nature.
In the United States and the United Kingdom, management has greater latitude. Labor costs are more variable in nature.In the United States and the United Kingdom, management has greater latitude. Labor costs are more variable in nature.
Within countries managers can view labor costs differentlydepending upon their strategy. Most companies in the
United States continue to view direct labor as a variable cost.
Within countries managers can view labor costs differentlydepending upon their strategy. Most companies in the
United States continue to view direct labor as a variable cost.
Ren
t C
ost
in T
hous
ands
of
Dol
lars
0 1,000 2,000 3,000 Rented Area (Square Feet)
0
30
60
Fixed Costs and the Relevant Range
90
Relevant
Range
The relevant range of activity for a fixed cost is the range of activity over which the graph of the
cost is flat.
The relevant range of activity for a fixed cost is the range of activity over which the graph of the
cost is flat.
Fixed Costs and the Relevant Range
Fixed costs would increase Fixed costs would increase in a step fashion at a rate of in a step fashion at a rate of $30,000 for each additional $30,000 for each additional
1,000 square feet. 1,000 square feet.
For example, assume office space is available at For example, assume office space is available at a rental rate of $30,000 per year in increments of a rental rate of $30,000 per year in increments of
1,000 square feet. 1,000 square feet.
How does this How does this step-function step-function
pattern differ from a pattern differ from a step-variable cost?step-variable cost?
Step-variable costs can be adjusted more quickly as conditions
change and . . .
The width of the activity steps is much wider for
the fixed cost.
Fixed Costs and the Relevant Range
Quick Check
Which of the following statements about cost behavior are true?
a. Fixed costs per unit vary with the level of activity.
b. Variable costs per unit are constant within the relevant range.
c. Total fixed costs are constant within the relevant range.
d. Total variable costs are constant within the relevant range.
Which of the following statements about cost behavior are true?
a. Fixed costs per unit vary with the level of activity.
b. Variable costs per unit are constant within the relevant range.
c. Total fixed costs are constant within the relevant range.
d. Total variable costs are constant within the relevant range.
Quick Check
Fixed Monthly
Utility Charge
Variable
Cost per KW
Activity (Kilowatt Hours)
Tot
al U
tility
Cos
t
X
Y
A mixed cost contains both variable and fixed elements. Consider the example of utility cost. A mixed cost contains both variable and fixed elements. Consider the example of utility cost.
Mixed Costs (also called semivariable costs)
Total mixed cost
Mixed Costs
Fixed Monthly
Utility Charge
Variable
Cost per KW
Activity (Kilowatt Hours)
Tot
al U
tility
Cos
t
X
Y
Total mixed cost
Mixed Costs – An Example
If your fixed monthly utility charge is $40, your If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your variable cost is $0.03 per kilowatt hour, and your
monthly activity level is 2,000 kilowatt hours, what is monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill?the amount of your utility bill?
If your fixed monthly utility charge is $40, your If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your variable cost is $0.03 per kilowatt hour, and your
monthly activity level is 2,000 kilowatt hours, what is monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill?the amount of your utility bill?
Analysis of Mixed Costs
In In account analysisaccount analysis, each account is , each account is classified as either variable or fixed basedclassified as either variable or fixed based
on the analyst’s knowledge of how on the analyst’s knowledge of how the account behaves.the account behaves.
In In account analysisaccount analysis, each account is , each account is classified as either variable or fixed basedclassified as either variable or fixed based
on the analyst’s knowledge of how on the analyst’s knowledge of how the account behaves.the account behaves.
The The engineering approachengineering approach classifies classifies costs based upon an industrial costs based upon an industrial
engineer’s evaluation of production engineer’s evaluation of production methods, and material, labor and methods, and material, labor and
overhead requirements.overhead requirements.
The The engineering approachengineering approach classifies classifies costs based upon an industrial costs based upon an industrial
engineer’s evaluation of production engineer’s evaluation of production methods, and material, labor and methods, and material, labor and
overhead requirements.overhead requirements.
Account Analysis and the Engineering ApproachAccount Analysis and the Engineering ApproachAccount Analysis and the Engineering ApproachAccount Analysis and the Engineering Approach
Learning Objective 2
Use a scattergraph plot to Use a scattergraph plot to diagnose cost behavior.diagnose cost behavior.
Plot the data points on a graph (Total Cost Y vs. Activity X).
Plot the data points on a graph (Total Cost Y vs. Activity X).
0 1 2 3 4
*
Mai
nten
ance
Cos
t1,
000’
s of
Dol
lars
10
20
0
***
**
**
*
*
Patient-days in 1,000’s
X
Y
The Scattergraph Method
The Scattergraph Method
Draw a line through the data points with about anequal numbers of points above and below the line. Draw a line through the data points with about an
equal numbers of points above and below the line.
0 1 2 3 4
*
Mai
nten
ance
Cos
t1,
000’
s of
Dol
lars
10
20
0
***
**
**
*
*
Patient-days in 1,000’s
X
Y
The Scattergraph Method
Use one data point to estimate the total level of activity and the total cost.
Use one data point to estimate the total level of activity and the total cost.
Intercept = Fixed cost: $10,000
0 1 2 3 4
*
Mai
nten
ance
Cos
t1,
000’
s of
Dol
lars
10
20
0
***
**
**
*
*
Patient-days in 1,000’s
X
Y
Patient days = 800
Total maintenance cost = $11,000
The Scattergraph Method
Make a quick estimate of variable cost per unit and determine the cost equation.
Make a quick estimate of variable cost per unit and determine the cost equation.
Variable cost per unit = $1,000 800
= $1.25/patient-day
YY = $10,000 + $1.25 = $10,000 + $1.25XXYY = $10,000 + $1.25 = $10,000 + $1.25XX
Total maintenance at 800 patients 11,000$ Less: Fixed cost 10,000 Estimated total variable cost for 800 patients 1,000$
Total maintenance at 800 patients 11,000$ Less: Fixed cost 10,000 Estimated total variable cost for 800 patients 1,000$
Total maintenance costTotal maintenance costTotal maintenance costTotal maintenance cost Number of patient daysNumber of patient daysNumber of patient daysNumber of patient days
Learning Objective 3
Analyze a mixed cost Analyze a mixed cost using the high-low method.using the high-low method.
The High-Low Method – An Example
Assume the following hours of maintenance work and the total maintenance costs for six months.
The High-Low Method – An Example
The The variable cost variable cost per hourper hour of of
maintenance is maintenance is equal to the change equal to the change
in cost divided by in cost divided by the change in hours.the change in hours.
The The variable cost variable cost per hourper hour of of
maintenance is maintenance is equal to the change equal to the change
in cost divided by in cost divided by the change in hours.the change in hours.
= $6.00/hour$6.00/hour$2,400
400
The High-Low Method – An Example
Total Fixed Cost = Total Cost – Total Variable CostTotal Fixed Cost = Total Cost – Total Variable Cost
Total Fixed Cost = $9,800 – ($6/hour Total Fixed Cost = $9,800 – ($6/hour × 850 hours)× 850 hours)
Total Fixed Cost = $9,800 – $5,100Total Fixed Cost = $9,800 – $5,100
Total Fixed Cost = Total Fixed Cost = $4,700$4,700
The High-Low Method – An Example
YY = $4,700 + $6.00 = $4,700 + $6.00XXThe Cost Equation for Maintenance
Quick Check
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
Quick Check
$4,000 ÷ 40,000 units = $0.10 per unit
Units Cost
High level 120,000 14,000$
Low level 80,000 10,000
Change 40,000 4,000$
Quick Check
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
Quick Check
Least-Squares Regression Method
A method used to analyze mixed costs if a scattergraph plot reveals an approximately linear
relationship between the X and Y variables.
This method uses This method uses allall of the of thedata points to estimatedata points to estimatethe fixed and variablethe fixed and variablecost components of acost components of a
mixed cost.mixed cost.
This method uses This method uses allall of the of thedata points to estimatedata points to estimatethe fixed and variablethe fixed and variablecost components of acost components of a
mixed cost.mixed cost.The goal of this method isThe goal of this method isto fit a straight line to theto fit a straight line to thedata that data that minimizes theminimizes the
sum of the squared errorssum of the squared errors..
The goal of this method isThe goal of this method isto fit a straight line to theto fit a straight line to thedata that data that minimizes theminimizes the
sum of the squared errorssum of the squared errors..
Least-Squares Regression Method
Software can be used to fit a regression line through the data points.
The cost analysis objective is the same: Y = a + bX
Least-squares regression also provides a statistic, called
the R2, which is a measure of the goodness
of fit of the regression line to the data points.
Least-squares regression also provides a statistic, called
the R2, which is a measure of the goodness
of fit of the regression line to the data points.
0 1 2 3 4
Tot
al C
ost
10
20
0
Activity
****
**
****
Least-Squares Regression Method
R2 is the percentage of the variation in the dependent variable (total cost) that is explained by variation in the
independent variable (activity).
R2 is the percentage of the variation in the dependent variable (total cost) that is explained by variation in the
independent variable (activity).
R2 varies from 0% to 100%, andthe higher the percentage the better.
X
Y
Comparing Results From the Three Methods
The three methods just discussed provide The three methods just discussed provide slightly different estimates of the fixed and slightly different estimates of the fixed and
variable cost components of the mixed cost.variable cost components of the mixed cost.
This is to be expected because each method This is to be expected because each method uses differing amounts of the data points to uses differing amounts of the data points to
provide estimates.provide estimates.
Least-squares regression provides the most Least-squares regression provides the most accurate estimate because it uses all the data accurate estimate because it uses all the data
points.points.
The three methods just discussed provide The three methods just discussed provide slightly different estimates of the fixed and slightly different estimates of the fixed and
variable cost components of the mixed cost.variable cost components of the mixed cost.
This is to be expected because each method This is to be expected because each method uses differing amounts of the data points to uses differing amounts of the data points to
provide estimates.provide estimates.
Least-squares regression provides the most Least-squares regression provides the most accurate estimate because it uses all the data accurate estimate because it uses all the data
points.points.
Learning Objective 4
Prepare an income Prepare an income statement using the statement using the contribution format.contribution format.
Let’s put our knowledge of cost behavior to work
by preparing a contribution
format income statement.
The Contribution Format
The Contribution Format
Total Unit
Sales Revenue 100,000$ 50$
Less: Variable costs 60,000 30
Contribution margin 40,000$ 20$
Less: Fixed costs 30,000
Net operating income 10,000$
Total Unit
Sales Revenue 100,000$ 50$
Less: Variable costs 60,000 30
Contribution margin 40,000$ 20$
Less: Fixed costs 30,000
Net operating income 10,000$
The contribution margin format emphasizes cost behavior. Contribution margin covers fixed
costs and provides for income.
The contribution margin format emphasizes cost behavior. Contribution margin covers fixed
costs and provides for income.
Uses of the Contribution Format
The contribution income statement format is used as an internal planning and decision-making tool.
We will use this approach for:
1.Cost-volume-profit analysis (Chapter 6).
2.Budgeting (Chapter 9).
3.Segmented reporting of profit data (Chapter 12).
4.Special decisions such as pricing and make-or-buy analysis (Chapter 13).
The contribution income statement format is used as an internal planning and decision-making tool.
We will use this approach for:
1.Cost-volume-profit analysis (Chapter 6).
2.Budgeting (Chapter 9).
3.Segmented reporting of profit data (Chapter 12).
4.Special decisions such as pricing and make-or-buy analysis (Chapter 13).
The Contribution Format
Used primarily forUsed primarily forexternal reporting.external reporting.
Used primarily byUsed primarily bymanagement.management.
Least-Squares Regression Computations
Appendix 5A
Learning Objective 5
Analyze a mixed cost Analyze a mixed cost using the least-squares using the least-squares
regression method.regression method.
Simple Regression Analysis – An Example
Matrix, Inc. wants to Matrix, Inc. wants to know its average know its average
fixed cost and fixed cost and variable cost per unit. variable cost per unit.
Using the data to the Using the data to the right, let’s see how to right, let’s see how to do a regression using do a regression using
Microsoft Excel.Microsoft Excel.
Matrix, Inc. wants to Matrix, Inc. wants to know its average know its average
fixed cost and fixed cost and variable cost per unit. variable cost per unit.
Using the data to the Using the data to the right, let’s see how to right, let’s see how to do a regression using do a regression using
Microsoft Excel.Microsoft Excel.
Simple Regression Using Excel – An Example
You will need three pieces of information from your regression analysis:
1. Estimated Variable Cost Per Unit (line slope)
2. Estimated Fixed Costs (line intercept)
3. Goodness of fit, or R2
You will need three pieces of information from your regression analysis:
1. Estimated Variable Cost Per Unit (line slope)
2. Estimated Fixed Costs (line intercept)
3. Goodness of fit, or R2
To get these three pieces information we will need to use three Excel functions.
SLOPE, INTERCEPT, and RSQ
To get these three pieces information we will need to use three Excel functions.
SLOPE, INTERCEPT, and RSQ
Simple Regression Using Excel – An Example
Place your cursor in Place your cursor in cell F4 and press the cell F4 and press the = key. Click on the = key. Click on the
pull down menu and pull down menu and scroll down to “More scroll down to “More
Functions . . .”Functions . . .”
Place your cursor in Place your cursor in cell F4 and press the cell F4 and press the = key. Click on the = key. Click on the
pull down menu and pull down menu and scroll down to “More scroll down to “More
Functions . . .”Functions . . .”
Scroll down to the Scroll down to the ““StatisticalStatistical”, ”,
functions. Now functions. Now scroll down the scroll down the
statistical statistical functions until you functions until you
highlight highlight ““SLOPESLOPE””
Scroll down to the Scroll down to the ““StatisticalStatistical”, ”,
functions. Now functions. Now scroll down the scroll down the
statistical statistical functions until you functions until you
highlight highlight ““SLOPESLOPE””
Simple Regression Using Excel – An Example
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
Simple Regression Using Excel – An Example
Here is the Here is the estimate of the estimate of the
slope of the line.slope of the line.
Simple Regression Using Excel – An Example
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
With your cursor in With your cursor in cell F5, press the = cell F5, press the =
key and go to the pull key and go to the pull down menu for down menu for
“Special Functions.” “Special Functions.” Select Select Statistical Statistical and and
scroll down to scroll down to highlight the highlight the
INTERCEPTINTERCEPT function. function.
With your cursor in With your cursor in cell F5, press the = cell F5, press the =
key and go to the pull key and go to the pull down menu for down menu for
“Special Functions.” “Special Functions.” Select Select Statistical Statistical and and
scroll down to scroll down to highlight the highlight the
INTERCEPTINTERCEPT function. function.
Simple Regression Using Excel – An Example
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
Here is the Here is the estimate of the estimate of the
fixed costs.fixed costs.
Simple Regression Using Excel – An Example
Finally, we will Finally, we will determine the determine the ““goodness of goodness of fitfit”, or ”, or RR22, by , by
using the using the RSQRSQ function.function.
Finally, we will Finally, we will determine the determine the ““goodness of goodness of fitfit”, or ”, or RR22, by , by
using the using the RSQRSQ function.function.
Simple Regression Using Excel – An Example
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.
Here is the Here is the estimate of estimate of RR22..
Simple Regression Using Excel – An Example
End of Chapter 5
