Wallace Industries wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here): What is the cost equation based upon the results of the regression analysis?

Question

Wallace Industries wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):  What is the cost equation based upon the results of the regression analysis?

Quizplus · Accepted Answer

The cost equation is in the form of y = a + bx, where:
y = monthly operating costs
x = machine hours
a = fixed cost
b = variable cost per unit of cost driver

Based on the given regression analysis results, the variable cost per unit of cost driver (b) is $0.72, and the fixed cost (a) is $2,945.95. Therefore, the cost equation can be written as:
y = $0.72x + $2,945.95

Option B is the only one that matches the correct order and values for the variables in the cost equation.

Wallace Industries Wanted to Determine the Relationship Between Its Monthly