Select Page

Glorious Accounting Information Analysts are a group of consultants who have been hired to advice a client who runs a manufacturing business which makes plastic containers for salads. You are hired to analyse the basic information as to what drives overheads.Your assistant has gathered thirty months of data for production runs, machine hours and overhead costs for each month. Machine hours is the number of hours the machine runs for a month. Overhead is the total amount of indirect costs for the client factoryProduction runs is the number of times the machine runs (starting, warming up, and shutting down).Your assistant then runs two models:1. Model 1: Overhead is the dependent variable and Machine Hours is the independent variable.2. Model 2. Overhead cost is the dependent variable. There are TWO independent variables Machine Hours and Production runsRequired:1. Write the equation for model 1. Use the equation in for Model 1 to estimate overhead if 1,850 machine hours are worked.2. If the actual cost is $91,000, is this business losing control given the t value is 2.04 for 28 degrees of freedom at 95% confidence,3. Write the equation for Model 2. What is the estimated overhead for 1,800 machine hours are worked and 50 production runs;4. What is the confidence range for the cost per machine hour and the cost for production run for 95% where t = 2.04 for 28 degrees of freedom. Comment on this range for cost per production run as well as cost per machine hoursModel 1Regression StatisticsMultiple R0.860935717R Square0.7412103174%Adjusted R Square0.731967821Standard Error5003.125148Observations30ANOVAdfSSMSFSignificance FRegression12007406122200740612280.195960.0001Residual28700875314.825031261.24CoefficientsStandard Errort StatP-valueFixed cost27901.227544828.5685.7783650.001100.00%Machine Hours variable cost29.134146973.2533158.955220.001Then your assistant runs a second model (multiple regression) where overhead cost is the dependent variable. The independent variables are Machine Hours and Production runsModel 2.