Learning Outcomes
- Use the least-squares regression method to create a regression line on a graph of cost data
This method uses all of the data available to separate the fixed and variable portions of a mixed cost. A regression line is fitted into the data using the following formula:
Y= a + bX
Y= Maintenance costs
X= Number of dogs groomed
a= the total fixed cost
b= the variable cost per unit of activity
So using this calculator.
If you use the data from the dog groomer example you should be able to calculate the following chart:
![A graph depicting a regression line with "independent" on the x-axis and "dependent" on the y-axis. The graph is trending in a linear progression.](https://s3-us-west-2.amazonaws.com/courses-images/wp-content/uploads/sites/2985/2018/04/17003225/Screen-Shot-2018-07-16-at-5.32.03-PM.png)
This method is more accurate, using all of the available data. The table below shows the difference in calculation using the two methods:
Costs | High-low | Least Squares Regression Method |
---|---|---|
Variable cost estimate per dog groomed | $.080 | $.074 |
Fixed cost estimate per month | $340 | $362.24 |
Practice Questions