Flexible Budget, Multiple Regression

The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table.

Month	Overhead Costs	Machine Hours	Number of Setups	Number of Purchase Orders
January	$ 32,296	1,000	20	216
February	31,550	930	18	250
March	36,280	1,100	21	300
April	36,867	1,050	23	270
May	36,790	1,170	22	285
June	37,800	1,200	25	240
July	40,024	1,235	27	237
August	39,256	1,190	24	303
September	33,800	1,070	20	255
October	33,779	1,210	22	195
November	37,225	1,207	23	270
December	27,500	1,084	15	150
Totals	$423,167	13,446	260	2,971

Required:

1. Run a multiple regression equation using machine hours, number of setups, and number of purchase orders as independent variables. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the regression coefficients to the nearest cent and predicted overhead to the nearest dollar.)

If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.

Muir Company Flexible Budget for Overhead
Month	Predicted Overhead	Actual Overhead	Variance
January	$	$	$	Favorable
February				Favorable
March				Unfavorable
April				Unfavorable
May				Favorable
June				Favorable
July				Unfavorable
August				Unfavorable
September				Favorable
October				Favorable
November				Favorable
December				Unfavorable
Totals	$	$	$	Favorable

Feedback

2. Now, suppose that the controller remembers that the factory throws two big parties each year, one for the 4th of July and the other for Christmas. Rerun the multiple regression with machine hours, number of setups, and number of purchase orders, and add a dummy variable called Party. (This variable takes the value one for months with a factory-sponsored party, and zero otherwise.) Prepare a flexible budget for the 12 months using the results of this regression. (Round the regression coefficients to the nearest cent and each predicted overhead amount to the nearest dollar.)

If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.

Muir Company Flexible Budget for Overhead
Month	Predicted Overhead	Actual Overhead	Variance
January	$	$	$	Unfavorable
February				Favorable
March				Favorable
April				Unfavorable
May				Favorable
June				Unfavorable
July				Favorable
August				Unfavorable
September				Favorable
October				Favorable
November				Favorable
December				Unfavorable
Total	$	$	$	Unfavorable