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. | $ | 4,200 | 480 | |||
Feb. | 3,000 | 320 | ||||
Mar. | 3,600 | 400 | ||||
Apr. | 2,820 | 300 | ||||
May | 4,350 | 500 | ||||
June | 2,960 | 310 | ||||
July | 3,030 | 320 | ||||
Aug. | 4,470 | 520 | ||||
Sept. | 4,260 | 490 | ||||
Oct. | 4,050 | 470 | ||||
Nov. | 3,300 | 350 | ||||
Dec. | 3,160 | 340 | ||||
Sum | $ | 43,200 | 4,800 | |||
Average | $ | 3,600 | $ | 400 | ||
Average cost per hour | $ | 9.00 | ||||
a (intercept) | $ | 684.65 | ||||
b (coefficient) | 7.2884 | |||||
Standard error of the estimate | 34.469 | |||||
R-squared | 0.99724 | |||||
t-value for b | 60.105 | |||||
If Armer Company uses the high-low method of analysis, the equation
for the relationship between hours of activity and maintenance cost
follows:
Multiple Choice
None of these answer choices are correct.
y = 3,600 + 400x
y = 570 + 7.5x
y = 570 + 9.0x
y = 400 + 9.0x
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