The Armer Company is accumulating data to be used in preparing its annual profit
ID: 2427742 • Letter: T
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:
Hours of Activity
Maintenance Costs
January
480
$ 4,300
February
340
3,500
March
350
3,500
April
330
2,590
May
530
4,280
June
320
2,520
July
300
2,990
August
450
4,130
September
500
4,010
October
540
3,930
November
350
3,300
December
300
2,940
Sum
4,790
41,990
Average
399
3,499
A coefficient
1,123.26
B coefficient
5.9522
Standard error of the a cofficient
442.703
Standard error of the a cofficient
1.08242
Standard error of the estimate
334.137
R2
0.75148
T-value a
2.537
T-value b
5.499
Based upon the data derived from the regression analysis, 430 maintenance hours in a month would mean the maintenance costs would be budgeted at: (rounded to the nearest whole dollar)
Hours of Activity
Maintenance Costs
January
480
$ 4,300
February
340
3,500
March
350
3,500
April
330
2,590
May
530
4,280
June
320
2,520
July
300
2,990
August
450
4,130
September
500
4,010
October
540
3,930
November
350
3,300
December
300
2,940
Sum
4,790
41,990
Average
399
3,499
Explanation / Answer
Regression = a + b x
Maintenance costs = 1,123.26 + 5.9522 x Hours of activity
Maintenance costs = 1,123.26 + 5.9522 x 430 = $3,682.71
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