Carter Company uses the account analysis approach to identify the cost behavior of factory costs for each month. A review of the companys factory costs resulted in the following information based on a production level of 500 units.

	Total	= Variable	+ Fixed
Direct materials	$740,000	$740,000	$ - 0 -
Direct labor	460,000	460,000	- 0 -
Overhead	440,000	400,000	40,000
Total production costs	$1,640,000	$1,600,000	$40,000

Based on this information, the cost equation for monthly factory costs is:

• Y = $80 + $3,200X .

• Y = $3,280X .

• Y = $40,000 - $3,200X .

• Y = $40,000 + $3,200X .