Velman Company wants to determine the factors that are associated with overhead. The controller for Velman constructed a multiple regression equation using the following independent variables: direct labor hours, number of setups, and number of purchase orders. The analysis was run using the past 60 months of data. The follow- ing printout is obtained:

Parameter	Estimate	t for Ho Parameter = 0	Pr > t	Error of Parameter
Intercept	2,130	65.00	0.0001	225.000
Direct labor hours	17	3.17	0.0050	3.256
Number of setups	810	4.90	0.0050	108.256
Number of
purchase orders	26	7.96	0.0250	5.103

R2 = 0.95

Se = 150

Observations 60

Required

1.    Write out the cost formula for monthly overhead for Velman Company.

2.    If Velman budgets the following for next month, what is the budgeted overhead cost?

Direct labor hours	600
Number of setups	50
Number of purchase orders	120

3.    Suppose that Velman’s engineers found a way to reduce the number of setups by 50 percent. How much would be saved in overhead cost for the following month?

Answer rating: 100% (QA)

1 Let Hours of direct labor should be H The number of setups should be S Be P for the number of purc... View the full answer