The Armer Company is accumulating data to be used in preparing its annual profit

Question

The Armer Company is accumulating data to be used 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 that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows:

Based upon the data derived from the regression analysis, 410 maintenance hours in a month would mean the maintenance costs would be budgeted at: (rounded to the nearest whole dollar)

Options:

$3,981.

$3,623.

$3,617.

$3,526.

The Armer Company is accumulating data to be used 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 that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows:

Explanation / Answer

The regression equation is:

Y hat=1367+5.4886*X hat

Given X=410 hours,

The maintenance cost is 1367+5.4886*410=$3617

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