All right So I am a bit confused.

The question I am working on right now states the following:

You are applying the scattergraph method and find that the regression line you have drawn passes through a data point with the following coordinates: 7,500 units and $10,000. The regression line passes through the Y axis at the $4,000 point. Which of the following is the cost formula that represents the slope of this line?

So I figured I would use the Least-squares regression method to calculate this...

The fact that the regression line passes through the Y axis @ $4000 would mean that the fixed cost is 4000 correct?

using the formula y=a +bX that gives me

Y=4000 + ?X

but that is basically where I get lost. How do I determine the b?

Take a look carefully of the formula and given:

You were given the formula Y = a + bx, where a is y-intercept and b is slope.

Remember that coordinates are in (x,y) form thus, x and y are already given Y = a + bx

You were also given the y-intercept which is the a Y = a + bx

Now, all you have to do is substitute the given values to the formula to solve for b.

Let me know your final figure. :)

I am a bit confused because a represents the total fixed cost and b represents the variable cost per unit of activity

So according to the scatterplot graph wouldn't the total fixed cost be 4000?

When I use 10000 as the total fixed I get
Y=$10,000+$1.33X

But now I think I just really confused myself ha.

Nope; remember the coordinate is in (x,y) form this means that if your coordinate is (1,500 units, $2,000), then X = 1,500 units and Y = $2,000.

If you substitute it to the formula, Y = a + bX, then

$2,000 = a + b(1,500 units)

Got the idea? ;)

Please let me know. :)

By the way, fixed cost is a.

You got this right:

Quote:

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Y=4000 + ?X

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All right I THINK I got it... but I am completely unsure of myself.

Y=$4,000+$1.25X was what I ended up with.

Not still; can you show me how you end up with this so I can see where it went wrong?

Ah I noticed a mistake it should have been Y=$4,000+$0.80X correct? I switched the division in excel so hence the 1.25

10000 = 4000 +b (7500)
6000 = b(7500)
6000/7500 = b
.80 = b

was the new calculation

Correct! :)

So, the equation should be Y = 4,000 + 0.80X

Congratulations! :)

Ahhh Thank you, I don't know why it was so difficult for me to do such a simple equation.

No problem;

The key in solving equation is to know the given first. :)