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

From the output, the cost formula can be written as follows:
y = 62,000 + 19.00x
where y is the total equipment maintenance cost and x is the number of machine hours. 
To predict the cost for April when 5,000 machine hours are incurred, we substitute x = 5,000 into the formula:
y = 62,000 + 19.00(5,000)
y = $157,000
Therefore, the predicted cost of equipment maintenance for April is $157,000. The correct choice is C.