CMA Intermediate · Financial Management and Business Data Analytics · Data Analysis and Modelling
A firm estimates the regression line Y = 40 + 5X, where Y is monthly maintenance cost (Rs thousand) and X is machine hours (hundreds). What is the predicted cost when X = 12?
Substituting X = 12 into Y = 40 + 5X gives 40 + 60 = 100, so the predicted maintenance cost is Rs 100 thousand. The intercept of 40 is the fixed component and must be added to the variable component of 60.
- ARs 100 thousandCorrect
- BRs 60 thousand
- CRs 220 thousand
- DRs 112 thousand
Explanation
Y = 40 + 5 x 12 = 40 + 60 = 100. Rs 60 thousand omits the intercept (fixed part). Rs 220 thousand wrongly multiplies 40 + 5 by 12 = 180 plus 40, or similar misuse; Rs 112 thousand adds 12 to 100 wrongly.
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