Question

Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
  

Month	Machine Hours	Electricity Costs
January	2,600	$	19,250
February	3,000	$	22,700
March	2,000	$	14,350
April	3,200	$	24,700
May	3,900	$	29,100
June	3,400	$	23,700
July	4,200	$	25,600
August	3,600	$	23,600
September	2,100	$	17,200
October	3,800	$	27,700
November	4,800	$	32,700
December	4,300	$	28,600

  

Summary Output
Regression Statistics
Multiple R	.955
R Square	.912
Adjusted R2	.904
Standard Error	1,630.46
Observations	12.00

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	4,476.65	1,979.98	2.26	0.05	64.99	8,888.32
Machine Hours	5.76	0.56	10.20	0.00	4.50	7.01

If the controller uses regression analysis to estimate costs, the cost equation for electricity cost is:

A. Cost = $4,476.65 + $1,979.98 × Machine-hours.

B. Cost = $4,476.65 + $5.76 × Machine-hours.

C. Cost = $1,979.98 + $0.56 × Machine-hours.

D. Cost = $1,630.46 + $12.00 × Machine-hours.

Answer 1

Fixed cost = Intercept Coefficient = $4,476.65

Variable cost = Machine Hour Coefficient = $5.76

The cost equation for electricity cost is Cost = $4,476.65 + $5.76 × Machine-hours.

Option B is correct