Question: To select the most appropriate activity base for allocating overhead, KenLee Manufacturing ran a multiple regression of several independent variables against its nonmaintenance overhead cost.

To select the most appropriate activity base for allocating overhead, KenLee Manufacturing ran a multiple regression of several independent variables against its nonmaintenance overhead cost. The results were as follows for 24 observations:

Discuss the appropriateness of each of these variables for use as an activity base. Which would you recommend selecting?Why?

Variable Name Coefficient Standard Error t-Statistic Direct labor hours Units of output Maintenance costs Cost of utilities Intercept R for the multiple regression 0.876 10.218 S(12.786) 0.766 12.768 2.686 5.378 $1.113 $0.079 6.359 0.326 1.900 (11.488) 9.696 2.008 0.90

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