Here are the meanings of the components or symbols used in the least squares equation of *y = a + bx*:

*y *is the *dependent *variable, such as the estimated or expected *total cost of electricity* during a month. The amount of *y* is dependent upon the amounts of *a *and *bx*.

*a* is the estimated total amount of *fixed electricity costs* during the month. It is the value of *y*, when *x* is zero. If the total cost line intersects the y-axis at $1,000 then it is assumed that the *total fixed costs* for a month are $1,000.

*b* is the estimated *variable cost per unit* of *x*. It determines the *slope *of the total cost line. If *b* is $5, this means that the variable cost portion of electricity is estimated to be $5 for every unit of *x*.

*x* is the *independent *variable. For example, *x* could represent the known number of machine hours used in the month.

*bx* is the *total variable cost of electricity*. If the company’s electricity cost is estimated to be $5 per unit of *x*, and *x *is 4,000 machine hours, then the *total variable cost of electricity *for the month is estimated to be $20,000.

In our example the total estimated cost of electricity (*y*) in a month when *x* is 4,000 machine hours will be $21,000.