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Midgett Co. has accumulated data to use in preparing its annual profit plan for the...

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Accounting

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:

Month Maintenance Cost Machine Hours
Jan. $ 5,030 540
Feb. 3,630 360
Mar. 4,400 560
Apr. 3,341 350
May 5,235 650
June 3,350 370
July 3,713 500
Aug. 5,345 770
Sept. 5,122 570
Oct. 4,856 660
Nov. 3,949 360
Dec. 3,810 420
Sum $ 51,781 6,110
Average $ 4,315.08 509.17

Average cost per hour ($51,781/6,110) = $8.47 (rounded to the nearest cent)

r = 0.89170

r2 = 0.79513

The percent of the total variance that can be explained by the regression equation is:

Multiple Choice

  • 79.554%.

  • 49.403%.

  • 60.782%

  • 79.513%.

  • 79.375%.

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