Laura Mills is the controller of Peer Jets International, a manufacturer of small corporate jets. She has undertaken a project to study the behavior of overhead cost. She has assembled factory overhead data for the last 30 months from the company’s manufacturing facility. Laura has asked you to develop a model to predict the level of manufacturing overhead.
The following categories of information are available to Laura. Manufacturing overhead includes all of the overhead costs associated with the manufacturing plant. Labor hours are the number of hours manufacturing employees worked. Machine hours are the total hours that machinery was used for the period. Tons of raw materials are all of the raw materials that were used for that particular month. Data for this problem are available at the Wiley Web site www.wiley.com/ college/eldenburg.

REQUIRED
A. Create a scatter plot of manufacturing overhead for each of the potential cost drivers.
B. Would you eliminate any of the potential cost drivers based on the scatter plots? Why or why not?
C. Explain why you create a scatter plot of the data before you perform regression analysis.
D. To practice your regression analysis skills, perform a simple regression analysis of manufacturing overhead for each of the three potential cost drivers. Write the cost function from each regression.
E. Based on the simple regression results, which cost driver, does the best job of explaining manufacturing overhead costs? Explain.
F. Do your regression results support your answer to part (B)? Explain.