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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 530             
$ 4,300             
  February 350             
3,500             
  March 410             
3,900             
  April 310             
2,600             
  May 460             
4,370             
  June 320             
3,180             
  July 300             
3,280             
  August 460             
4,680             
  September 460             
4,620             
  October 500             
4,270             
  November 310             
3,300             
  December 370             
3,270             




  Sum 4,780             
45,270             
  Average 398             
3,773             
  A coefficient

888.14     
  B coefficient

7.2411     
  Standard error of the a cofficient 493.814     
    
  Standard error of the a cofficient 1.21636     
     
  Standard error of the estimate

330.364     
  R2

0.77992     
  T-value a

1.799     
  T-value b

5.953     

 What would be the cost equation if regression analysis is used?


 A. Maintenance Costs = 888.14 + 7.2411 × Hours of Activity.

B. Maintenance Costs = 888.14 + 493.814 × Hours of Activity.

C. Maintenance Costs = 330.364 + 0.77992 × Hours of Activity.

D. Maintenance Costs = 7.2411 + 888.14 × Hours of Activity.

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 460             
$ 4,300             
  February 340             
3,300             
  March 420             
3,400             
  April 270             
2,970             
  May 480             
4,370             
  June 300             
2,990             
  July 330             
3,140             
  August 530             
4,530             
  September 500             
4,100             
  October 480             
4,250             
  November 380             
3,100             
  December 330             
3,160             




  Sum 4,820             
43,610             
  Average 402             
3,634             
  A coefficient

988.42     
  B coefficient

6.5869     
  Standard error of the a cofficient 315.893     
    
  Standard error of the a cofficient 0.76986     
    
  Standard error of the estimate

223.613     
  R2

0.87981     
  T-value a

3.129     
  T-value b

8.556     

What would be the cost equation if the high-low method is used?


 A. Maintenance Costs = 8.10 × Hours of Activity.

B. Maintenance Costs = 1,350 + 6.00 × Hours of Activity.

C. Maintenance Costs = 223.613 +0.87981 × Hours of Activity.

D. Maintenance Costs = 3,634 + 402 × Hours of Activity.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M9955384

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