Serendipity Co. uses regression analysis to develop a model for prediction overhead costs. Two different cost drivers (machine hours and direct materials weight) are under consideration as the independent variable. Relevant data were run on a computer using one of the standard regression programs, with the following results.
Which regression equation should be used?
y = 2.500 + 5.0x
y = 2500 + 3.5x
y = 4,600 + 2.6x
y = 4,600 + 1.3x
Solution
Overhead Costs (y) = {2500 + 5(Machine hours)} + {4600 + 2.6(Direct Materials Weight)}
You are regressing y on 2 variables, Machines hours and direct materials weight.
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Serendipity Co- uses regression analysis to develop a model for predic.docx
1. Serendipity Co. uses regression analysis to develop a model for prediction overhead costs. Two
different cost drivers (machine hours and direct materials weight) are under consideration as the
independent variable. Relevant data were run on a computer using one of the standard regression
programs, with the following results.
Which regression equation should be used?
y = 2.500 + 5.0x
y = 2500 + 3.5x
y = 4,600 + 2.6x
y = 4,600 + 1.3x
Serendipity Co. uses regression analysis to develop a model for prediction overhead costs. Two
different cost drivers (machine hours and direct materials weight) are under consideration as the
independent variable. Relevant data were run on a computer using one of the standard regression
programs, with the following results.
Machine hours Coefficient
Y intercept 2,500
B 5.0
r-squared = .70
Direct materials weight
Y intercept 4,600
B 2.6
r-squared = .50
Which regression equation should be used?
Solution
Overhead Costs (y) = {2500 + 5(Machine hours)} + {4600 + 2.6(Direct Materials Weight)}
You are regressing y on 2 variables, Machines hours and direct materials weight.