Final answer:
The correct overhead cost formula, using least-squares method information, is Overhead = $5,700 + $45X. The correlation coefficient is not included in the cost formula. 'Spreading the overhead' refers to distributing fixed costs over produced output.
Step-by-step explanation:
The question is related to the calculation of overhead cost using the least-squares method of linear regression. The correct cost formula, based on the information provided (slope and intercept), would be Overhead = $5,700 + $45X. Here, $5,700 is the fixed cost or the y-intercept, $45 is the variable cost per unit of the activity variable (direct labor hours), and 'X' represents the number of direct labor hours. The correlation coefficient mentioned (0.72) is not used in the cost formula; rather, it indicates the strength of the relationship between direct labor hours and overhead costs. Therefore, the correct answer to the question "What is the cost formula?" is option b: Overhead = $5,700 + $45X.
The concept of spreading the overhead means distributing the fixed overhead cost over the quantity of output produced. As the quantity of output increases, the average fixed cost per unit decreases, which is represented by a downward-sloping curve on a graph.