The following information was taken from a computer printout generated with the least-squares method for use in estimating overhead costs: $$\begin{array} { l l }
\text { Slope } & 45 \
\text { Intercept } & 5,700 \
\text { Correlation coefficient } & .72 \
\text { Activity variable } & \text { Direct 1abor hours }
\end{array}$$ The cost formula is
A)Overhead = $5,700 − $45X
B)Overhead = $5,700 + $45X
C)Overhead = $5,700 + ($45 × 0.72)
D)Overhead = $5,700 × 0.72

Question

The following information was taken from a computer printout generated with the least-squares method for use in estimating overhead costs: $$\begin{array} { l l } 
\text { Slope } & 45 \
\text { Intercept } & 5,700 \
\text { Correlation coefficient } & .72 \
\text { Activity variable } & \text { Direct 1abor hours }
\end{array}$$ The cost formula is
A)Overhead = $5,700 − $45X
B)Overhead = $5,700 + $45X
C)Overhead = $5,700 + ($45 × 0.72)
D)Overhead = $5,700 × 0.72

Quizplus · Accepted Answer

The cost formula in a linear regression model is given by $Y = a + bX$, where $a$ is the intercept, $b$ is the slope, and $X$ is the activity variable. Here, the intercept is $5,700, and the slope is $45, making the correct formula Overhead = $5,700 + $45X.

The Following Information Was Taken from a Computer Printout Generated