Margola Company produces hand-held calculators.The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory.Data for the past four months were collected.

Coefficients shown by a regression program are:
Intercept 1,150
X Variable 1 9.06

Using the results of regression, the cost formula for maintenance cost was:
A) $1,150 × machine hours.
B) ($4,686 − $3,956) / (386 − 310).
C) $9.06 × machine hours.
D) $1,150 + ($9.06 × machine hours).

Question

Margola Company produces hand-held calculators.The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory.Data for the past four months were collected. ​
​
 ​
Coefficients shown by a regression program are:
Intercept 1,150
X Variable 1 9.06
​
Using the results of regression, the cost formula for maintenance cost was:
A) $1,150 × machine hours. 
B) ($4,686 − $3,956) / (386 − 310). 
C) $9.06 × machine hours. 
D) $1,150 + ($9.06 × machine hours).

Quizplus · Accepted Answer

The cost formula for maintenance cost is given by the equation:
Maintenance Cost = Fixed Cost + (Variable Cost per unit × X Variable 1)

where,
Fixed Cost = Intercept = $1,150
Variable Cost per unit = Coefficient of X Variable 1 = $9.06
X Variable 1 represents the machine hours.

Thus, the cost formula for maintenance cost is:
Maintenance Cost = $1,150 + ($9.06 × machine hours)

Therefore, option D is the correct choice.

Margola Company Produces Hand-Held Calculators