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QUESTION 4 Regression Analysis

Guide to marks: 20 marks – 5 for a, 10 for b, 3 for c, 2 ford

Belinda, the accountant at Murray Manufacturing Company wants toidentify cost drivers for support overhead costs. She has theimpression that the staff spend a large part of their time ensuringthat the equipment is correctly set up and checking the first unitsof production in each batch. Deborah has collected the followingdata for the past 12 months:

Month	OH Cost	MH	Batches
1	$80,000	2,200	300
2	40,000	2,400	120
3	63,000	2,100	250
4	45,000	2,700	160
5	44,000	2,300	200
6	48,000	3,800	170
7	65,000	3,600	260
8	46,000	1,800	160
9	33,000	3,200	150
10	66,000	2,800	210
Total	530,000	26,900	1,980

(a)Using the high-low method to estimate support overhead costsbased on machine hours (MH), what would be the estimated supportoverhead costs (to the nearest $) for a month in which 3,000machine hours were used?

(b)Using Excel, perform three regression analyses to regressOverhead Cost against Machine Hours, then against Batches, thenagainst both of them simultaneously. Paste your results into Word.State the cost equation from each. Analyse and comment on theresults of each regression as you perform it and determine the bestone to use as a basis for future use.

(c)If you had to settle for the results of a simple regression,which one would you use and why?

(d)Using the best regression result determine the projectedOverhead Cost in a month in which there were 2000 machine hoursworked and 150 batches produced.