What is Regression analysis?
In short
Regression analysis estimates how a dependent variable, such as total cost, changes with one or more independent variables, such as machine hours, by fitting an equation like y = a + bx to past data.
Key takeaways
- The coefficient of determination (R²) shows the share of the variation in the dependent variable explained by the model.
- It is used for cost estimation, forecasting and analytical procedures.
- A strong relationship doesn't prove cause and effect, and predictions outside the range of the data are unreliable.
Example
Cost = $12,000 + $4 × machine hours predicts $32,000 of cost at 5,000 hours.
Where it's tested
BAR: Financial Forecasting, Budgeting & Valuation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a regression model that forecasts sales from advertising spending, the coefficient of determination (R²) is 0.81. This means: