P$3\mathrm{.}6($LO $1,3),$ s Excel Business Writing Meyer Grove Company has traditionally had large manufacturing overhead costs relative to its direct material $($DM$)$ and direct labor $($DL$)$ costs. Becar$-$ of the

significance of these overhead costs, management is trying to better understand what is driving them. Dawn, the cost analyst on the team, gathered select information from key activities and product cos $$ are

potential cost drivers: direct labor hours, machine hours, direct material costs, and number of material moves.

Data pertaining to the past $18$ months for manufacturing overhead costs, as well as usage information for each of the possible cost drivers, is as follows.

Required

a$.$ Using the above observations and regression analyses, determine the best cost formula to explain this company's monthly overhead costs. The company is perfectly happy to select a model with one cost driver

if it's the best model. Management would like to at least consider a multiple regression model if it seems viable, though. Clearly write out the formal cost function that Dawn should conclude is the best one.

b$.$ As if you were Dawn, write a memo to the rest of the team, explaining how and why you reached this conclusion. The team would benefit from a thorough explanation of not only why this preferred model is

valid, but also why this model's cost driver is $($or why this model's multiple cost drivers are$)$ better than any other combination of cost drivers available to predict monthly overhead costs. The team would also

benefit from Dawn's understanding of the key linearity assumption.

c$.$ Use Dawn's preferred regression model as specified in part $($a$)$ to predict this company's overhead costs for next month if the following cost driver levels are expected:

Direct labor hours

Machine hours

$4,000$

$2,400$

$$24,000$

Direct material costs

Number of material moves

$14$