The management of Ferry Corporation would like for you to analyze their repair costs, which are listed below: Management believes that repair cost is a mixed cost that depends on the number of machine-hours. Using the least-squares regression method, the estimates of the variable and fixed components of repair cost would be closest to:
A)$1.64 per machine-hour plus $29,566 per month
B)$0.92 per machine-hour plus $31,132 per month
C)$1.37 per machine-hour plus $30,157 per month
D)$15.39 per machine-hour plus $33,096 per month

Question

The management of Ferry Corporation would like for you to analyze their repair costs, which are listed below:  Management believes that repair cost is a mixed cost that depends on the number of machine-hours. Using the least-squares regression method, the estimates of the variable and fixed components of repair cost would be closest to:
A)$1.64 per machine-hour plus $29,566 per month 
B)$0.92 per machine-hour plus $31,132 per month 
C)$1.37 per machine-hour plus $30,157 per month 
D)$15.39 per machine-hour plus $33,096 per month

Quizplus · Accepted Answer

To use the least-squares regression method, we need to plot the data on a graph. The graph shows a linear relationship between the repair costs and the number of machine-hours. We can use the line of best fit to estimate the variable and fixed components of the repair cost.

Using a regression analysis, we get the following equation:

Total Repair Cost = Fixed Cost + (Variable Cost x Machine-Hours)

The results of the regression analysis indicate that the fixed cost is $30,157, and the variable cost is $1.37 per machine-hour. Therefore, the estimate of the repair cost for Ferry Corporation would be closest to:

Total Repair Cost = $30,157 + ($1.37 x Machine-Hours)

Therefore, the best choice is option C: $1.37 per machine-hour plus $30,157 per month.

The Management of Ferry Corporation Would Like for You to Analyze