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ACCA Applied Knowledge · Management Accounting · Summarising and analysing data

A regression of total monthly maintenance cost (y, in $) on machine hours (x) gives y = 4,200 + 3.5x. Machine hours next month are forecast at 2,000. What is the forecast maintenance cost?

The forecast cost is $11,200. Substitute 2,000 machine hours into the regression line: fixed cost of $4,200 plus variable cost of $3.50 per hour times 2,000 hours, which is $7,000, giving a total of $11,200.

  1. A$7,000
  2. B$11,200Correct
  3. C$4,203.5
  4. D$14,000

Explanation

Cost = 4,200 + 3.5 x 2,000 = 4,200 + 7,000 = $11,200. Option A omits the fixed cost of $4,200. Option D multiplies 7,000 by 2 in error or misuses the formula.

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