Fitzgerald Manufacturing has been using ABC to determine the costs of its products. One of the activities, Inspection occurs just before the product is finished. Fitzgerald inspects every 10^th unit, and has been using Inspection labor hours as the cost driver for inspection cost. A significant component of inspection costs is the cost of the test kit used in each inspection.

Maya McFeen, the line manager, is wondering if units inspected might be a better cost driver for inspection costs. A significant component of inspection costs is the cost of the test kit used in each inspection. Maya gathered the following information for weekly inspection costs, units inspected, and inspection labor hours:

Week	Inspection Costs	Units Inspected	Inspection Labor-hours
1	$3,700	1,700	200
2	1,800	450	60
3	4,500	1,800	230
4	5,900	2,550	280
5	5,500	2,000	210
6	2,400	750	90
7	2,900	1,100	110
8	2,700	800	100
9	3,700	1,200	180
10	2,600	850	150
11	1,900	500	140
12	4,200	1,850	200

REQUIRED

1. Prepare a regression using inspection costs as the dependent variable and inspection labor-hours as the independent variable. Provide a plot of the data including the regression line. Write out the cost equation that results from this regression analysis on the graph. Copy the graph into Word.

2. Prepare a regression using inspection costs as the dependent variable and number of units inspected as the independent variable. Provide a plot of the data including the regression line. Write out the cost equation that results from this regression analysis on the graph. Copy the graph into Word.

3. Which cost driver for inspection costs would you select and why? (set up a chart with criteria and discuss)

4. If Maya anticipates 100 inspection hours to inspect 1100 units next week, using the cost driver you selected in #3, what is the range of amounts of inspection cost should Maya budget for next week?

5. Pricing is based on a cost-plus formula where costs are estimated then contracts are priced at 50% above cost. What would happen if Maya picked the wrong cost driver to set target costs and prices? What other implications may result from choosing the wrong cost driver?