If Armer Company uses the high-low method of analysis, the equation for the relationship between hours of
Question:
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:
Step by Step Answer:
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins