Figure 3-12. The method of least squares was used to develop a cost equation to predict the cost of monthly equipment maintenance.The following computer output was received:
The driver used was the number of machine hours.
Refer to Figure 3-12.Using the cost formula for the equipment maintenance cost,what is the predicted cost of equipment maintenance for April assuming that 5,000 machine hours will be incurred in April?
A)$32,000
B)$125,000
C)$157,000
D)none of these are correct

Question

Figure 3-12. The method of least squares was used to develop a cost equation to predict the cost of monthly equipment maintenance.The following computer output was received:
 The driver used was the number of machine hours.
Refer to Figure 3-12.Using the cost formula for the equipment maintenance cost,what is the predicted cost of equipment maintenance for April assuming that 5,000 machine hours will be incurred in April?
A)$32,000 
B)$125,000 
C)$157,000 
D)none of these are correct

Quizplus · Accepted Answer

According to the output, the cost equation is:
Cost = $26,000 + ($6 * number of machine hours)
Substitute 5,000 machine hours for "number of machine hours":
Cost = $26,000 + ($6 * 5,000) = $56,000
Therefore, the predicted cost of equipment maintenance for April assuming that 5,000 machine hours will be incurred in April is $157,000 (Choice C).