Question

Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:
Intercept Coefficient = 89,500

X Variable 1 Coefficient = 62.50

R- square = 0.9855

What is the company's monthly cost equation?

A. y = $62.50x + $89,500

B. y = $89,500x + $62.98

C. y = $89,500x + $98.55

D. y = $98.55x + $89,500

Answer 1

Answer:

A. y = $62.50x + $89,500

Explanation:

A cost equation is an mathematical formula which company uses to estimate the cost and expenses which is associated with the production or sales processes.

y represents the total cost which can be calculated by adding total variable cost and Fixed cost. X represent the quantity and variable coefficient is the variable cost. to calculate the total variable cost the quantity is multiplied with the variable cost unit as follow

variable cost = $62.50x

As Intercept Coefficient shows the fixed cost

Fixed cost = $89,500

So the cost equation will be

Total Cost = Variablecost + Fixed cost

y = $6.50x + $89,500