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 January February March April May June July August September October November December Machine Hours 2,500 2,900 1,900 3,100 3,800 3,300 4,100 3,500 2,000 3,700 4,700 4,200 Electricity Costs $ 18,400 $ 21,000 $ 13,500 $ 23,000 $ 28,250 $ 22,000 $ 24,750 $ 22,750 $ 15,500 $ 26,000 $ 31,000 $ 27,750 Summary Output Regression Statistics Multiple R R Square Adjusted R2 Standard Error | Observations .965 .932 .925 1,425.18 12.00 t Intercept Machine Hours Coefficients 3,726.88 5.77 Standard Error 1,682.82 0.49 Stat 2.21 11.7 P-value 0.05 0.00 1 Lower 95% 1 Upper 95% (22.69) 7,476.45 4. 676 .87 If the controller uses regression analysis to estimate costs, the estimate of the variable portion of electricity cost is: O Variable Cost = $11.70 Machine-hours. O Variable Cost = $0.93 x Machine-hours. O Variable Cost = $5.77 x Machine-hours. O Variable Cost = $0.49 x Machine-hours.

Answer 1

Answer : Variable cost =$5.77 *MAchine Hours

From the Regression output Variable cost is the Machine Hours

Cost Equation = Y=A+BX

Y= electricity Cost

A= Fixed cost (interecept)

B=Variable cost ( Machine Hour)

X= Machine Hours