Question

In: Accounting

As a facilities supervisor, you would like to be able to estimate maintenance costs using machine...

As a facilities supervisor, you would like to be able to estimate maintenance costs using machine hours as the cost driver. To do this, you perform a linear regression with machine hours as the independent (X) variable, and maintenance costs as the dependent (Y) variable. This results in the following output:

SUMMARY OUTPUT

Regression Statistics

Multiple R

0.908881

R Square

0.894012

Standard Error

752.6137

Observations

28

ANOVA

df

SS

MS

F

Significance F

Regression

1

69942828

69942828

123.4807

2.26E-11

Residual

26

14727112

566427.4

Total

27

84669940

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

980.635

435.8579

2.892274

0.007632

364.7019

2156.539

364.7019

2156.539

Machine Hours

17.360

1.339521

11.11219

2.26E-11

12.13158

17.63842

12.13158

17.63842

A. What percentage of the variation in maintenance costs can be explained by machine hours?

B. How much maintenance cost should we expect if a factory has zero (0) machine hours?

C. By how much should we estimate maintenance costs to increase for every one hour increase in machine hours?

Label and place your final answer for A-C.

Solutions

Expert Solution

A. What percentage of the variation in maintenance costs can be explained by machine hours?
Since Variation in dependent variable is expalined by the R Sqauare, and in this case is Dependent variable is Maintenance cost and R square is 0.894012 so 89% of variation in maintenace cost is explained by Machine hours(Independent variables).
B. How much maintenance cost should we expect if a factory has zero (0) machine hours?
There is Cost Formula: Y = 17.36X + 980.635
Where Y is Maintenance cost, X is Machine hours, 980.635 is fixed cost, 17.36 is Variable cost
So For 0 Machine hours, there will be 980.635 of maintenance cost that is fixed cost.
C. By how much should we estimate maintenance costs to increase for every one hour increase in machine hours?
Usin the same cost formula expalined in part 2, $17.36 is variable cost per machine hour, so for every machine hour $17.36 will increase.

ekkarill92 answered 1 hour ago
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