The following information was taken from a computer printout generated with the least-squares method for use in estimating overhead costs:
$\begin{array}{lr}
\text { Slope } & 45 \
\text { Intercept } & 5,700 \
\text { Correlation coefficient } & .72 \
\text { Activity variable } & \text { Direct labour hours }
\end{array}$
What is the cost formula?
A)Overhead = $5,700 - $45X
B)Overhead = $5,700 + $45X
C)Overhead = $5,700 + ($45 * 0.72)
D)Overhead = $5,700 * 0.72

Question

The following information was taken from a computer printout generated with the least-squares method for use in estimating overhead costs: 
$\begin{array}{lr}
\text { Slope } & 45 \
\text { Intercept } & 5,700 \
\text { Correlation coefficient } & .72 \
\text { Activity variable } & \text { Direct labour hours }
\end{array}$ 
What is the cost formula?
A)Overhead = $5,700 - $45X
B)Overhead = $5,700 + $45X
C)Overhead = $5,700 + ($45 * 0.72)
D)Overhead = $5,700 * 0.72

Quizplus · Accepted Answer

The cost formula is derived from the slope and intercept values given. The slope represents the variable cost per unit of the activity variable (in this case, $45 per direct labor hour), and the intercept represents the fixed cost ($5,700). Therefore, the cost formula is Overhead = $5,700 + $45X, where X is the number of direct labor hours.

The Following Information Was Taken from a Computer Printout Generated