Question

The controller for Cadmium Company ran regression on the 10 months data of machining costs and the number of hours spent on machining. The coefficients shown by the regression program are: Intercept 16,946 (rounded to the nearest dollar) X variable 1 8.43 (rounded to the nearest cent) The cost formula for the purchasing activity showing the fixed cost and the variable rate is:

a. Total materials handling cost = ($16,946 + $8.43) ÷ Hours spent).
b. Total materials handling cost = ($16,946 + $8.43) × Hours spent.
c. Total materials handling cost = $16,946 + ($8.43 ÷ Hours spent).
d. Total materials handling cost = $16,946 + ($8.43 × Hours spent).

Answer 1

The correct cost formula for Cadmium Company's machining costs is 'Total materials handling cost = $16,946 + ($8.43 × Hours spent)', which accounts for both fixed and variable costs.

Step-by-step explanation:

To determine the cost formula for Cadmium Company's machining costs, we use the regression coefficients provided. The intercept represents the fixed costs, which do not vary with the number of hours spent on machining. In contrast, the X variable coefficient represents the variable rate per hour spent on machining. Thus, using these coefficients, the correct cost formula would be the sum of the fixed costs and the variable costs multiplied by the hours spent on machining.

The equation for the total materials handling cost should be written as option d: Total materials handling cost = $16,946 + ($8.43 × Hours spent). This equation denotes that for every hour spent on machining, the variable cost increases by $8.43, and regardless of the hours spent, there is always a fixed cost of $16,946.