If Armer Company uses the high-low method of analysis, the equation for the relationship between hours of activity and maintenance cost follows:

a. y = 400 + 9.0 x

b. y = 570 + 7.5 x

c. y = 3,600 + 400 x

d. y = 570 + 9.0 x

e. None of the above

(CMA Adapted)

Armer Company, which 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.

	Hours of Activity	Maintenance Costs
January	480	$4,200
February	320	$3,000
March	400	$3,600
April	300	$2,820
May	500	$4,350
June	310	$2,960
July	320	$3,030
August	520	$4,470
September	490	$4,260
October	470	$4,050
November	350	$3,300
December	340	$3,160
Sum	4,800	$43,200
Average	400	$3,600
Average cost per hour ($43,200/4,800) =			$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

Data regarding the maintenance hours and costs for the last year and the results of the regression analysisfollow:

Transcribed Image Text:

Armer Company, which 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 quation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression anal ysis follow: