The management of Smoots 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)$4.64 per machine-hour plus $34,603 per month
B)$2.09 per machine-hour plus $19,018 per month
C)$2.79 per machine-hour plus $13,787 per month
D)$2.00 per machine-hour plus $19,649 per month

Question

The management of Smoots 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)$4.64 per machine-hour plus $34,603 per month 
B)$2.09 per machine-hour plus $19,018 per month 
C)$2.79 per machine-hour plus $13,787 per month 
D)$2.00 per machine-hour plus $19,649 per month

Quizplus · Accepted Answer

The solution using Microsoft Excel functions is:
slope = $2.00 per machine-hour
intercept = $19,649 per month
The solution using the formulas in the text is:
n = 8
sumX = 59,675
sumY = $276,827
sumXY = $2,064,972,610
sumX2 = 445,146,287
b = [n(sumXY) - (sumX)(sumY))]/[n(sumX^2) - (sumX)^2]
= [8($2,064,972,610) - (59,675)( $276,827))]/[8(445,146,287) - (59,675)^2]
= $2.00
a = [(sumY) - b(sumX)]/n
= [($276,827) - $2.00(59,675)]/8
= $19,649
Any difference in the solutions is due to rounding errors when the formulas are use

The Management of Smoots Corporation Would Like for You to Analyze