Question

Jorgenson Corporation has provided the following data for the first five months of the year: Machine Hours Lubrication Cost January 255 $ 1,525 February 355 $ 1,635 March 430 $ 1,770 April 315 $ 1,620 May 350 $ 1,700 Using the least-squares regression method of analysis, the estimated variable lubrication cost per machine hour is closest to:

Multiple Choice $.92 $1.50 $1.38 $1.27

Answer 1

Answer: $ 1.38

Calculation of variable cost per machine hour using least-squares regression method is as follows:

	X	Y	X2	XY
Month	Machine hours	Total Cost
	(i)	(ii)	(iii) [ (i)*(i) ]	(iv) [ (i)*(ii) ]
January	255	$     1,525	$     65,025	$    3,88,875
February	355	$     1,635	$ 1,26,025	$    5,80,425
March	430	$     1,770	$ 1,84,900	$    7,61,100
April	315	$     1,620	$     99,225	$    5,10,300
May	350	$     1,700	$ 1,22,500	$    5,95,000
Total	1705	$    8,250	$ 5,97,675	$ 28,35,700

Where, n = 5 ( number of months )

Thus, Variable vost per machine hour is $ 1.38