Least Squares Method

As explained in the previous chapter, when costs are neither purely variable nor purely fixed, we must identify and separate those variable and fixed components to be able to incorporate them into our cost-volume-profit analysis. The least squares method is a more precise mathematical approach to accomplish that objective. Let’s expand on the example of Bob’s Appliances. Over the past several years, Bob’s volume of deliveries and delivery costs has varied from year to year as shown in Table 9.1, Deliveries and Costs.

Notice that the last 2 years contain the same data we used in the high-low method to determine the variable delivery cost per unit ($7.50) and the fixed delivery cost per year ($1,450).

To find the ...

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