# The Armer Company is accumulating data

June 5, 2016

Question
The Armer Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows:

Hours of Activity Maintenance Costs
January 470 \$ 4,000
February 280 2,600
March 410 3,100
April 260 2,670
May 540 4,260
June 280 3,170
July 340 3,070
August 460 4,050
September 450 4,240
October 530 4,090
November 370 3,600
December 330 3,460
Sum 4,720 42,310
Average 393 3,526

A coefficient 1,367.00
B coefficient 5.4886
Standard error of the a cofficient 358.171
Standard error of the a cofficient .88593
Standard error of the estimate 286.890
R2 0.79331
T-value a 3.817
T-value b 6.195
Based upon the data derived from the regression analysis, 410 maintenance hours in a month would mean the maintenance costs would be budgeted at: (rounded to the nearest whole dollar)