# Question

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.

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.

## Answer to relevant Questions

Refer to the data and requirements of Problem 2.42.REQUIREDA. Perform multiple regressions using all three cost drivers. Compare the adjusted R-squares and cost functions for the multiple regressions with the results of ...Why are outliers a problem for any cost estimation technique?Barney’s Pizza Parlor recently opened for business. The owner wants a cost function estimate to help with future planning. The manager feels that last month’s results fairly represent costs over the coming six months. ...Explain the term sales mix in your own words. How does sales mix affect the contribution margin?Dalton Brothers pay 15% in taxes on income between $1 and $40,000. All income above $40,000 is taxed at 40%. The firm’s variable costs as a percent of revenues are 60%. Annual fixed costs are $250,000.REQUIREDA. What level ...Post your question

0