Figure 3-7.Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were collected. Coefficients shown by a regression program are:

-Refer to Figure 3-7. Using the results of regression, the cost formula for maintenance cost was
A) $1,150 * machine hours
B) ($4,686 - $3,956)/(386 - 310)
C) $9.06 * machine hours
D) $1,150 + ($9.06 * machine hours)

Question

Figure 3-7.Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were collected.  Coefficients shown by a regression program are:
 
-Refer to Figure 3-7. Using the results of regression, the cost formula for maintenance cost was
A) $1,150 * machine hours 
B) ($4,686 - $3,956)/(386 - 310) 
C) $9.06 * machine hours 
D) $1,150 + ($9.06 * machine hours)

Quizplus · Accepted Answer

The cost formula for maintenance cost can be determined using the results of regression:
Total cost = Fixed cost + (Variable cost per unit × Activity level)

From the given coefficients, the fixed cost is $1,150 and the variable cost per unit (slope) is $9.06. The activity level is measured in machine hours.

Therefore, the correct cost formula is:
Total cost = $1,150 + ($9.06 per machine hour × Number of machine hours)

Hence, the best choice is option D.