Question

The Perize Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect Materials Cost Explained by Units Producd Constant $15,690 Standard error of Y estimate $3,200 r2 = 0.7832 Number of observations 22 X coefficient(s) 12.50 Standard error of coefficient(s) 2.1850

A. Y = $18,890 + $5.72X
B. Y = $12,490 + $12.50X
C. Y = $3,200 + $9.79X
D. Y = $15,690 + $12.50X

Answer 1

The regression equation for predicting the annual cost of indirect materials at Perize Corporation is Y = $15,690 + $12.50X, with a strong r-squared value of 0.7832 indicating a good fit.

Step-by-step explanation:

The Perize Corporation used regression analysis to predict the annual cost of indirect materials based on the number of units produced. The equation that represents this relationship can be obtained by identifying the constant and the coefficient for the variable 'X', which stands for the number of units produced. Considering the information provided, the correct equation for predicting the annual cost of indirect materials is Y = $15,690 + $12.50X. This equation includes the constant term of $15,690 as the fixed cost (the cost that does not change with production level), and the variable cost per unit produced as $12.50. The r-squared value of 0.7832 indicates a strong linear relationship between the number of units produced and the indirect materials cost.