Bobby’s Garage offers oil changes, brake checks, and repairs for cars. The management accountant at Bobby’s garage suspects that indirect materials in the workshop are a variable overhead cost, and that this cost is mainly driven by the number of cars being worked on (# of jobs). Indirect materials include lubes, small nuts and bolts, as well as cleaning supplies. To support his theory, the accountant uses data from the last 60 months and runs a regression analysis with indirect materials costs as the dependent variable and # of jobs as the independent variable.

variable coefficent standard error tvalue

constant $4694 $2150 2.18

indep. variable # of jobs $36.20 $15.29 2.37

r2=.36  

Which of the following conclusions about the cost behavior of indirect materials is correct?

A.The analysis is inconclusive because none of the coefficient estimates is statistically significant.

B.Indirect materials is a fixed cost because there will be estimated indirect costs of $4,694 per month even if zero jobs are performed.

C.Indirect materials is a variable cost, and each job is estimated to add $36.20 in indirect materials.

D.Indirect materials is a mixed cost.