The least-square method is a statistical method used in separating semi-variable cost by establishing a line of best fit to data. The linear cost function can be represented by using the equation

y = a+bx,

where:

y = total cost

a= fixed cost

b = variable cost per unit

x = level of output

To find out the values of ‘a’ and ‘b’ which are constant, we have to solve the following simultaneous equation:

∑y = an +b∑x

∑xy = a∑x +b∑x^2

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