Question

# Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have...

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:

 Month Machine Hours Electricity Costs January 3,500 \$ 18,900 February 3,900 \$ 22,000 March 2,900 \$ 14,000 April 4,100 \$ 24,000 May 4,800 \$ 28,750 June 4,300 \$ 23,000 July 5,500 \$ 25,250 August 4,500 \$ 23,250 September 3,000 \$ 16,500 October 4,700 \$ 27,000 November 6,800 \$ 32,000 December 6,000 \$ 28,250

 Summary Output Regression Statistics Multiple R .919 R Square .844 Adjusted R2 .829 Standard Error 2,165.73 Observations 12.00
 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 5,084.31 2,589.60 1.96 0.08 (685.68) 10,854.29 Machine Hours 4.11 0.56 7.36 0.00 2.86 5.35

If the controller uses high-low method to estimate costs, the cost equation for electricity cost is:( Round intermediate calculations to 2 decimal places)

Multiple choice:

1. Electricity costs= \$21.716
2. Electricity costs= \$5,084.31 + (\$4.11 * machine-hours)
3. Electricity cost = \$584 + (4.62 * machine-hours)
4. Electricity costs = \$5.40 * Machine-hours

Highest electricity cost is \$ 32000 in the month of november for which machine hours given is 6800.

Lowest electricity cost is \$ 14000 in the month of march for which machine hours given is 2900.

The cost equation for electricity cost is :-

variable cost portion calculation :-

( 32000 - 14000 ) / ( 6800 - 2900 ) =

18000 / 3900 = \$ 4.62 * machine hours

fixed cost portion calculation :-

32000 - [ 6800 * 4.62 ] = \$ 584

The cost equation for electricity cost is :-\$584 + (4.62 * machine-hours)

Option C is correct.