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.	$	4,200			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

Answer 1