Question

The accountant of ABC Company has the following maintenance costs and working hours for the past five months and trying to separate the cost to its components:

Month	Cost	Working hours
March	$100,000	5,000
April	60,000	1,000
May	68,600	2,000
June	83,450	3,420
July	88,000	5,250

The equation to predict the maintenance cost is

[[selectone]]

a. Y=38,000+16X

b. Y=40,000+10X

c. Y=50,000+10X

d. Y=40,000+12X

Answer 1

Answer is Option C i.e. Y=50,000 + 10X

Here X is the working hours. Here if we analyse the given options for predicting the maintenance cost, the Option C is giving the consistent answer for the month of March and April. Further for the month of May, une and July it is giving answer with less variance than that of other options upon comparison of the given data.

Kindly consider the following for better understanding;

Option a : 38000 + 16X

38000+16X		Total Cost	Variance
38000	80,000	118,000	(18,000)
38000	16,000	54,000	6,000
38000	32,000	70,000	(1,400)
38000	54,720	92,720	(9,270)
38000	84,000	122,000	(34,000)

Option b : 40000+10X  

40000+10X		Total Cost	Variance
40,000	50,000	90,000	10,000
40,000	10,000	50,000	10,000
40,000	20,000	60,000	8,600
40,000	34,200	74,200	9,250
40,000	52,500	92,500	(4,500)

Option c : 50000+10X

50000+10X		Total Cost	Variance
50,000	50,000	100,000	-
50,000	10,000	60,000	-
50,000	20,000	70,000	(1,400)
50,000	34,200	84,200	(750)
50,000	52,500	102,500	(14,500)

Option d : 40000+12X

40000+12X		Total Cost	Variance
40,000	60,000	100,000	-
40,000	12,000	52,000	8,000
40,000	24,000	64,000	4,600
40,000	41,040	81,040	2,410
40,000	63,000	103,000	(15,000)

Variance = Total Cost - Actual Cost given in the question.