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 540 $4,700
February 300 3,000
March 380 3,500
April 290 2,960
May 520 4,280
June 280 2,910
July 300 3,040
August 510 4,650
September 510 4,170
October 450 4,250
November 360 3,100
December 340 3,070
Sum 4,780 43,630
Average 398 3,636
A coefficient 915.85
B coefficient 6.8284
Standard error of the a cofficient 228.102
Standard error of the a cofficient 0.55640
Standard error of the estimate 186.843
R2 0.93774
T-value a 4.015
T-value b 12.272
Using the high-low method to estimate cost behavior, 410 maintenance
hours in a month would mean the maintenance costs would be budgeted
at:.
a. $3,804.40.
b. $3,894.00.
c. $3,070.00.
d. $3,636.00.