Question

Armer Company 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. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis follow:
Month
Maintenance Cost
Machine Hours
Jan.
$
4,200


480

Feb.

3,000


320

Mar.

3,600


400

Apr.

2,820


300

May

4,350


500

June

2,960


310

July

3,030


320

Aug.

4,470


520

Sept.

4,260


490

Oct.

4,050


470

Nov.

3,300


350

Dec.

3,160


340

Sum
$
43,200


4,800

Average
$
3,600

$
400

Average cost per hour

$
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



At 400 hours of activity, Armer management can be approximately two-thirds confident that the maintenance costs will be in the range of

Answer 1

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