Question

The controller for Cadmium Company ran regression on the 10 months of data on 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 formula for total materials handling cost using the given data is 'Total materials handling cost = $16,946 + ($8.43 × Hours spent)', which represents the sum of fixed costs and variable costs multiplied by the number of hours spent on machining. Option B is correct answer.

Step-by-step explanation:

Understanding the components of total costs, which include both fixed costs and variable costs, is essential in business and accounting. From the data provided by the Cadmium Company's controller, the correct cost formula for materials handling cost can be determined. The intercept, which represents the fixed cost, does not change with production levels. Therefore, the given intercept of $16,946 is the fixed cost for the activity. The coefficient for the X variable, $8.43, represents the variable cost per hour of machining.

Utilizing these coefficients, the correct cost formula for the total materials handling cost (TMC) can be stated as:

TMC = Fixed Cost + (Variable Cost × Number of Hours Spent)

In the context of the provided coefficients, this becomes:

TMC = $16,946 + ($8.43 × Hours spent)

Therefore, the correct option that represents this formula is:

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

For example, if the company spends 100 hours on machining, the total materials handling cost would be calculated as follows:

$16,946 (fixed cost) + ($8.43 × 100 hours spent) = $16,946 + $843 = $17,789

This clearly demonstrates why option b is the correct interpretation of how total costs are calculated by combining fixed and variable costs.