Cost Control. Ms. Karen Ainsworth is an employee of a well-known accounting finds management services division. She

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Cost Control. Ms. Karen Ainsworth is an employee of a well-known accounting find’s management services division. She is currently on a consulting assignment to the Apex Corporation, a firm that produces corrugated paper for use in making boxes and other packing materials. Apex called in consulting help to improve its cost control program, and Ms. Ainsworth is analyzing manufacturing costs to understand more fully the important influences on these costs. She has assembled monthly data on a group of variables, and she is using regression analysis to help assess how these variables are related to total manufacturing cost. The variables Ms. Ainsworth has selected to study, the data for which are contained in the file COST4 on the CD, are

y, total manufacturing cost per month in thousands of dollars (COST)

x1, total production of paper per month in tons (PAPER)

x2, total machine hours used per month (MACHINE)

x3, total variable overhead costs per month in thousands of dollars (OVERHEAD)

x4, total direct labor hours used each month (LABOR)

The data shown in Table 4.2 refer to the period January 2001 through March 2003. Ms. Ainsworth wants to use a cost function developed by means of regression analysis that initially includes all four of the explanatory variables. Use the regression results in Figure 4.8 to help answer the following questions:

a. What is the equation that is determined using all four explanatory variables?

b. Conduct the F test for overall fit of the regression. State the hypotheses to be tested, the decision rule, the test statistic, and your decision. Use a 5% level of significance. What conclusion can be drawn from the result of the test?

c. In the cost accounting literature, the sample regression coefficient corresponding to xk is regarded as an estimate of the true marginal cost of output associated with the variable xk. Find a point estimate of the true marginal cost associated with total machine hours per month. Also, find a 95% confidence interval estimate of the true marginal cost associated with total machine hours.

d. Test the hypothesis that the true marginal cost of output associated with total production of paper is 1.0. Use a 5% level of significance and a two- tailed test procedure. State the hypotheses to be tested, the decision rule, the test statistic, and your decision. What conclusion can be drawn from the result of the test?

e. What percentage of the variation in y has been explained by the regression?

f. What is the adjusted R2 for this regression?

g. Based on the regression equation, what actions might be taken to control costs?

Table 4.2: Data for Cost Control Exercise

COST	PAPER	MACHINE	OVERHEAD	LABOR
1102	550	218	112	325
1008	502	199	99	301
1227	616	249	126	376
1395	701	277	143	419
1710	838	363	191	682
1881	919	399	210	751
1924	939	411	216	813
1246	622	248	124	371
1255	626	259	127	3S3
1314	659	266	135	402
1557	740	334	181	546
18S7	901	401	216	655
1204	610	238	117	351
1211	598	246	124	370
1287	646	259	127	3 87
1451	732	286	155	433
1828	891	389	208	878
1903	932	404	216	660
1997	964	430	233	694
1363	680	271	129	405
1421	723	286	146	426
1543	784	317	158	478
1774	S41	376	199	601
1929	922	415	228	679
1317	647	260	126	378
1302	656	255	117	380
1388	704	281	142	429