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Best cost driver for overhead

Subject: best cost driver for overhead

Details: You are trying to determine whether machine hours or direct labor dollars would be the best cost driver for overhead costs. You run two regressions and obtain the following results:

Machine Hours:
Multiple R .39429
R Square .15547
Adjusted R Square .14964
Standard error ..44416
X Variable 6.032
Intercept 7233.07

Direct Labor $:
Multiple R .89429
R Square .79547
Adjusted R Square .28964
Standard error .44416
X Variable 11.03
Intercept 8833.07

Which variable do you belive is the best selection for a cost driver? How did you choose the best cost driver?

Solution Preview

Of the two, Direct Labor is a better cost driver for the overhead costs than Machine Hours.

Its R square =.79547

And

Adjusted R Square= .28964

Against the corresponding ...

Solution Summary

Machine hours and direct labor dollars are examined to find which is the best cost driver for overhead costs. To arrive at the decision two regressions are run for machine hours and direct labor dollars.

$2.19