The output of a regression of overhead costs on direct labor costs per month follows:
Regression Results
Equation:
Intercept.................................................................................... $38,000
Slope.......................................................................................... 2.20
Statistical Data:
R2............................................................................................... 0.85
Smalltime Consulting Services plans to operate at a level that would call for direct labor costs of $20,000 per month for the coming year.
a. Use the regression output to write the overhead cost equation.
b. Based on the cost equation, compute the estimated overhead cost per month for the coming year.
c. How well does this regression explain the relation between direct labor and overhead?