Graphing costs and interpreting regression output (adapted from CMA exam). Management of Tino's Tacos wants to estimate overhead costs accurately to plan the company's operations and assess its financial needs. A trade association publication reports that certain overhead costs tend to vary with tacos made. Management gathered monthly data on tacos and overhead costs for the past two years for five taco restaurants. No major changes in operations were made over this time period. The data follow:
Month No. Number of Tacos Overhead Costs
| 1 |
....................................... |
20,000 |
$42,000 |
2
|
....................................... |
25,000 |
49,500 |
|
3
|
.......................................
|
22,000
|
44,750
|
|
4
|
.......................................
|
23,000
|
45,000
|
|
5
|
.......................................
|
20,000
|
40,750
|
|
6
|
.......................................
|
19,000
|
37,750
|
|
7
|
.......................................
|
14,000
|
35,250
|
|
8
|
.......................................
|
10,000
|
32,250
|
|
9
|
.......................................
|
12,000
|
34,500
|
|
10
|
.......................................
|
17,000
|
37,500
|
|
11
|
.......................................
|
16,000
|
35,750
|
|
12
|
.......................................
|
19,000
|
39,000
|
|
13
|
.......................................
|
21,000
|
43,000
|
|
14
|
.......................................
|
24,000
|
46,500
|
|
15
|
.......................................
|
23,000
|
46,500
|
|
16
|
.......................................
|
22,000
|
43,500
|
|
17
|
.......................................
|
20,000
|
40,000
|
|
18
|
.......................................
|
18,000
|
38,250
|
|
19
|
.......................................
|
12,000
|
33,750
|
|
20
|
.......................................
|
13,000
|
35,500
|
|
21
|
.......................................
|
15,000
|
36,750
|
|
22
|
.......................................
|
17,000
|
36,250
|
|
23
|
.......................................
|
15,000
|
35,500
|
|
24
|
.......................................
|
18,000
|
37,500
|
An analyst entered these data into a computer regression program and obtained the fol- lowing output:
Coefficients of the Equation:
Intercept $19,930
Independent Variable (slope) 1.0774
•Prepare a graph showing the overhead costs plotted against tacos.
•Use the results of the regression analysis to prepare the cost estimation equation and to prepare a cost estimate for 20,000 tacos for one month.