For a simple regression analysis model that is used to allocate factory overhead, an internal auditor finds that the intersection of the line of best fit for the overhead allocation with the y-axis is $5,000. The slope of the line is .20. The independent variable, factory wages, amounts to $900,000 for the month. What is the estimated amount of factory overhead to be allocated for the month?
A) $65,000.
B) $180,000.
C) $230,000.
D) $92,500.
E) $185,000.

Question

Quizplus · Accepted Answer

The formula for the line of best fit is:
y = a + bx
where y is the dependent variable (factory overhead), x is the independent variable (factory wages), b is the slope of the line, and a is the y-intercept (the value of y when x is 0).
We are given that a = $5,000 and b = 0.20.
Plugging in the given value of x, we get:
y = $5,000 + 0.20($900,000)
y = $5,000 + $180,000
y = $185,000
Therefore, the estimated amount of factory overhead to be allocated for the month is $185,000.

For a Simple Regression Analysis Model That Is Used to Allocate