# Question: A government agency pays research contractors a fee to cover

A government agency pays research contractors a fee to cover overhead costs, over and above the direct costs of a research project. Although overhead costs vary considerably among contracts, they are usually a substantial share of the total contract cost. An agency task force obtained data on overhead costs are a percentage of direct costs, number of employees of the contractor, size of contract as a percentage of the contractor’s yearly income, and personnel costs as a percentage of direct costs. The data are given below for the 86 research contractors as follows: contractor, overhead costs as a percentage of direct costs, number of employees, size of contract, and personnel costs as a percentage of direct costs.

QUESTION CONTINUE TO NEXT PAGE…..

a. Obtain correlations of all pairs of variables. Is there a severe collinearity problem with the data?

b. Plot overhead costs against each of the other variables. Locate a possible high influence outlier.

c. Obtain a regression equation (with overhead costs as the dependent variable) using all the data including any potential outlier.

d. Delete the potential outlier, and get a revised regression equation. How much did the slopes change?

QUESTION CONTINUE TO NEXT PAGE…..

a. Obtain correlations of all pairs of variables. Is there a severe collinearity problem with the data?

b. Plot overhead costs against each of the other variables. Locate a possible high influence outlier.

c. Obtain a regression equation (with overhead costs as the dependent variable) using all the data including any potential outlier.

d. Delete the potential outlier, and get a revised regression equation. How much did the slopes change?

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