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27 August, 18:43

Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:

Intercept Coefficient = 89,500

X Variable 1 Coefficient = 62.50

R - square = 0.9855

What is the company's monthly cost equation?

A. y = $62.50x + $89,500

B. y = $89,500x + $62.98

C. y = $89,500x + $98.55

D. y = $98.55x + $89,500

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  1. 27 August, 19:07
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    A. y = $62.50x + $89,500

    Explanation:

    A cost equation is an mathematical formula which company uses to estimate the cost and expenses which is associated with the production or sales processes.

    y represents the total cost which can be calculated by adding total variable cost and Fixed cost. X represent the quantity and variable coefficient is the variable cost. to calculate the total variable cost the quantity is multiplied with the variable cost unit as follow

    variable cost = $62.50x

    As Intercept Coefficient shows the fixed cost

    Fixed cost = $89,500

    So the cost equation will be

    Total Cost = Variablecost + Fixed cost

    y = $6.50x + $89,500
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