Curvilinear cost functions.Below are the data and some results of an OLS linear regression.
The explanatory power of the quantity produced and sold (the predictor variable) to explain changes in the size of the indirect manufacturing cost pool is approximately 38%. This exceeds the threshold value for r2 for a reliable relationship of 30%. As a management accountant who is familiar with OLS linear regression modelling, you are, however, uneasy with the results.

REQUIRED
In groups of two or three, complete the following requirements.
1. What output causes your unease?
2. What step did you miss, and what should you do at this point?
3. Examine the plot of the residuals. How would the management team interpret this result?
What is the next step?

4. Refer to the table of data. Using Excel, plot the actual values of the quarterly MOH cost pool. Click on the box to report R2 and add a logarithmic trendline. Below is an illustration of the result of your Excel plot. What does this step of the specification analysis tell a management accountant?

5. Using Excel, plot the average-cost-per-unit curve including a trendline. Of what use is this information to the management team?

9666444433333332222222222 r-10000000000000000000000000 00 0 2 4 4 3 2 4 3 3 2 2 3 3 06 7 4 6 50392 09 0 6 1 .8 5 2 91 4 5 1 2 631365172.6 13324 45 22752265227 2 663 2 1 2 5 1 6 7 4 6 2 36 of od 1 3 7 1371352891835 1112223344 4 5 6 6 6 7 7 8 8 9 9 02 123456789 0 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 a Sold and Produced OLS Linear Regression Line $450 $400 2 $350 $300 8 $250 E$200 $150 $100 $50 a Indirect MCP Predicted Indirect MCP -Linear (Predicted Indirect MCP) 400 Q Sold and Produced X (in thousands) 200 600 800 Regression Statistics DMH Std Error t-Stat P-value R Square df Intercept a Slope b Confidence Critical Value df 0.3837 26.0 25.0 S36.4844 $0.3046 95.0% 2.060 36.2683 1.000 0.324:5 3.865 0.0007 95.0% 0.0788 25 2.060 Y-y= e Residual Plot 250,0000 200,0000 150,0000 100,0000 , 50,0000 (50,0000) (100,0000) (150,0000) 100 200 300 400 500 600 700 800 Actual Values of Quarterly $Y and Trendline R2 = 0.3455 2 19 10 $0 $50 $100 $150 $200 $250 $300 S350 $400 $450 Indirect Manufacturing Cost Pool (in millions) Actual Average Cost per Unit 15 8 $0 $0.50 $1.00 Dollars per Unit $1.50 $2.00