Chapter 6 - Problem 2 WD Inc. is developing a regression cost equation for the indirect costs in its plant. WD manufactures windows and doors used in home construction; both products are made in standard and custom sizes. Occasionally, a very large order substantially increases the direct and indirect costs in a given month. The indirect costs primarily consist of supplies, quality control and testing, overtime, and other indirect labor. Regression is used to budget indirect costs for the coming year, primarily for cash management purposes. The management accountant, knows from prior years that both direct labor hours and machine hours in the plant are good independent variables for estimating indirect costs. \begin{tabular}{|l|r|c|c|} \hline \multicolumn{1}{|c|}{ Date } & TotalIndirectCosts & DirectLaborHours & MachineHours \\ \hline Jun-18 & $274,500 & 26,940 & 2,009 \\ \hline July & 320,000 & 35,690 & 3,057 \\ \hline August & 323,200 & 32,580 & 3,523 \\ \hline September & 219,900 & 24,580 & 1,856 \\ \hline October & 232,100 & 19,950 & 2,168 \\ \hline November & 342,300 & 34,330 & 3,056 \\ \hline December & 427,800 & 43,180 & 3,848 \\ \hline Jan-19 & 231,000 & 21,290 & 1,999 \\ \hline February & 257,300 & 28,430 & 2,290 \\ \hline March & 248,700 & 24,660 & 1,894 \\ \hline April & 248,400 & 27,870 & 2,134 \\ \hline May & 338,400 & 31,940 & 3,145 \\ \hline \end{tabular} Question: WD has received a custom order that would cause Direct Labor hours to be 45,000 hours and Machine hours to be 4200 hours next month. They have budgeted a maximum cash flow of $400,000 for the month. Should they accept the custom order? Explain your