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CMA Final · Strategic Cost Management · Introduction to Tools for Data Analytics

A cost analyst at an Indian auto-components firm records the monthly machine-hours and maintenance cost for five months: (10, 40), (20, 50), (30, 60), (40, 70), (50, 80), where the first figure is machine-hours (in hundreds) and the second is maintenance cost (Rs in thousands). Using a least-squares regression line, what is the predicted maintenance cost (Rs in thousands) for 60 hundred machine-hours?

The predicted maintenance cost is Rs 90 thousand. The data fit a perfect line with slope 1 and intercept 30, so cost equals 30 plus machine-hours in hundreds. At 60 hundred hours, the cost is 30 plus 60, which gives 90.

  1. A90Correct
  2. B85
  3. C95
  4. D100

Explanation

The points lie exactly on a straight line: each increase of 10 in hours adds 10 to cost, so slope b = 1. Intercept a = 40 - 10 = 30. Cost = 30 + X, so at X = 60 the cost is 90. The 85 option comes from using an average step instead of the line; 100 comes from forgetting the intercept and adding to 40.

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