Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:
Month Maintenance Cost Machine Hours
Jan. $5,040 620
Feb. 3,648 420
Mar. 4320 520
Apr. 3,331 390
May 5,221 650
June 3,550 400
July 3,655 430
Aug. 5,365 690
Sept. 5,110 640
Oct. 4,866 610
Nov. 3,944 460
Dec. 3,790 440
Sum $51,840 6,270 Average $4,320.00 522.50 Average cost per hour ($51,840 ÷ 6,270) = $8.27 (rounded to the nearest cent)
r = .99821
r2 = .99780
The percent of the total variance that can be explained by the regression equation is: