Method of Least Squares Using Computer Spreadsheet Program

The controller for Beckham Company believes that the number of direct labor hours is associated with overhead cost. He collected the following data on the number of direct labor hours and associated factory overhead cost for the months of January through August.

Month		Number of Direct Labor Hours			Overhead Cost
January		689			$5,550
February		700			5,590
March		720			5,650
April		690			5,570
May		680			5,570
June		590			5,410
July		750			5,720
August		675			5,608

Required:

1. Using a computer spreadsheet program such as Excel, run a regression on these data. Enter the amount of the intercept (rounded to the nearest whole dollar) and the amount of the X Variable 1 (rounded to the nearest cent).

Intercept: $

X Variable 1: $

2. Using the above results, enter the cost formula for overhead cost. (Note: Round the fixed cost to the nearest dollar and the variable rate to the nearest cent.)

Overhead cost = $ + ( $ )

3. Conceptual Connection: What is R² based on your results? Round the percentage to one decimal place. %

Do you think that the number of direct labor hours is a good predictor of factory overhead cost?

4. Assuming that expected September direct labor hours are 700, what is expected factory overhead cost using the cost formula in Requirement 2? $