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Regression and Estimating Costs

Production costs for a large number of previous orders of varying sizes for a product are in the file production.xls attached below. An analyst computes the production cost per unit in each order and averages these to get $50. Using this he gives a cost estimate of $24,000 for a new order for 500 units.

Is this a reasonable cost estimate? Explain why or why not.
Looking at the data in the file, can you give a better cost estimate? See attached for data.


Solution Preview

This is a reasonable cost estimate, but I believe it is low (by about $10,000). In Excel, I found a regression line that describes ...

Solution Summary

The solution analyses the reasonableness of an estimate for an order and then drafts a regression line in Excel to get a more accurate one.