The Armer Company is accumulating data to be used in prepari

The Armer Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows:

Hours of Activity

Maintenance Costs

  January

440             

$ 3,600             

  February

280             

2,700             

  March

390             

4,000             

  April

340             

2,560             

  May

470             

4,360             

  June

300             

2,570             

  July

300             

3,250             

  August

460             

4,640             

  September

490             

4,350             

  October

550             

4,480             

  November

360             

3,200             

  December

330             

3,480             

  Sum

4,710             

43,190             

  Average

393             

3,599             

  A coefficient

613.04     

  B coefficient

7.6080     

  Standard error of the a cofficient

535.683     

    

  Standard error of the a cofficient

1.33459     

     

  Standard error of the estimate

388.238     

  R²

0.76469     

  T-value a

1.144     

  T-value b

5.701     

What would be the cost equation if regression analysis is used?

	Hours of Activity		Maintenance Costs
January	440		$ 3,600
February	280		2,700
March	390		4,000
April	340		2,560
May	470		4,360
June	300		2,570
July	300		3,250
August	460		4,640
September	490		4,350
October	550		4,480
November	360		3,200
December	330		3,480
Sum	4,710		43,190
Average	393		3,599

Solution

Maintainance cost=613.04+7.6080*(Hours of activity)