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:

Answer 1

The cost formula for the purchasing activity at Cadmium Company is Total Costs = $16,946 + ($8.43 × Number of Machine Hours), where $16,946 represents fixed costs and $8.43 is the variable cost per machine hour.

Step-by-step explanation:

Based on the regression coefficients given for Cadmium Company, their cost formula can be articulated as follows: Total Costs = Fixed Costs + (Variable Cost per Machine Hour × Number of Machine Hours). The fixed cost is represented by the intercept of $16,946, and the variable cost rate is the coefficient for the X variable 1 which is $8.43 per machine hour.

Therefore, the cost formula is Total Costs = $16,946 + ($8.43 × Number of Machine Hours). This indicates a linear relationship between machining hours and total costs, which includes both fixed and variable components. As hours increase, variable costs increase in a linear fashion alongside the fixed costs.

The cost formula for the purchasing activity can be calculated using the coefficients from the regression program. The intercept value of $16,946 represents the fixed cost, and the coefficient of 8.43 represents the variable rate. Therefore, the cost formula can be written as: Cost = 8.43(number of hours spent on machining) + 16,946.