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Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed 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 are as follows:

Month Maintenance Cost Machine Hours

Jan. $5,040 620

Feb. 3,648 420

Mar. 4320 520

Apr. 3,331 390

May 5,221 650

June 3,550 400

July 3,655 430

Aug. 5,365 690

Sept. 5,110 640

Oct. 4,866 610

Nov. 3,944 460

Dec. 3,790 440

Sum $51,840 6,270 Average $4,320.00 522.50 Average cost per hour ($51,840 ÷ 6,270) = $8.27 (rounded to the nearest cent)

r = .99821

r2 = .99780

The percent of the total variance that can be explained by the regression equation is:

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M93122477

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