Question

Armer Company is accumulating data to use in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested the use of linear regression to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis follow:

Month	Maintenance Cost			Machine Hours
Jan.	$	4,750			700
Feb.		3,550			540
Mar.		4,150			620
Apr.		3,370			520
May		4,900			720
June		3,510			530
July		3,580			540
Aug.		5,020			780
Sept.		4,810			710
Oct.		4,600			690
Nov.		3,850			570
Dec.		3,710			560
Sum	$	49,800			7,480
Average	$	4,150		$	623
Average cost per hour				$	7.00
a (intercept)				$	-81.9267
b (coefficient)					6.7892
Standard error of the estimate					83.4170
R-squared					0.9838
t-value for b					24.6685

If Armer Company uses the high-low method of analysis, the equation for the relationship between hours of activity and maintenance cost follows

Answer 1

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