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.	$	4,800			720
Feb.		3,600			560
Mar.		4,200			640
Apr.		3,420			540
May		4,950			740
June		3,560			550
July		3,630			560
Aug.		5,070			820
Sept.		4,860			730
Oct.		4,650			710
Nov.		3,900			590
Dec.		3,760			580
Sum	$	50,400			7,740
Average	$	4,200		$	645
Average cost per hour				$	7.00
a (intercept)				$	1.9340
b (coefficient)					6.5086
Standard error of the estimate					114.5939
R-squared					0.9695
t-value for b					17.8257

If Armer Company uses the high-low method of analysis, the equation for the relationship between hours of activity and maintenance cost follows: (Do not round intermediate calculations.)

• a.y = 645 + 7.0x

• b.y = 238 + 5.9x

• c.y = 4,200 + 645x

• d.y = 238 + 7x

• e.None of these answer choices are correct.

Answer 1