Gentry Industries has the following information about maintenance costs in the past six months. The cost formula that expresses the behavior of Gentry's maintenance cost is:
A)Y = $0 + $1,600X.
B)Y = $160 + $6X.
C)Y = $16,000 + $6X.
D)Y = $0 + $6X.
E)Y = $1,600 + $6X.

Question

Gentry Industries has the following information about maintenance costs in the past six months.  The cost formula that expresses the behavior of Gentry's maintenance cost is:
A)Y = $0 + $1,600X. 
B)Y = $160 + $6X. 
C)Y = $16,000 + $6X. 
D)Y = $0 + $6X. 
E)Y = $1,600 + $6X.

Quizplus · Accepted Answer

The cost formula is Y = a + bX, where a is the fixed cost and b is the variable cost per unit. Looking at the data, we can see that the cost increases by $6 for every hour of maintenance performed. Therefore, the variable cost is $6. To find the fixed cost, we can use any point on the graph. Let's use the point (0, $1,600) since it makes the calculation easier. Plugging in the values, we get Y = $1,600 + $6X, which is equivalent to choice E.

Gentry Industries Has the Following Information About Maintenance Costs in the Past