5-26: Method of estimating costs: high-low
Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both. The following data were collected from last yearâ??s operations:
Month labor-hours Machine-hours Overhead costs
1 3,625.00 3,775.00 513,435.00
2 3,575.00 7,035.00 518,960.00
3 3,400.00 7,600.00 549,575.00
4 3,700.00 7,265.00 541,400.00
5 3,900.00 7,955.00 581,145.00
6 3,775.00 7,895.00 572,320.00
7 3,700.00 6,950.00 535,110.00
8 3,625.00 6,530.00 510,470.00
9 3,550.00 7,270.00 532,195.00
10 3,975.00 7,725.00 565,335.00
11 3,375.00 6,490.00 503,775.00
12 3,550.00 8,020.00 564,210.00
Methods of estimating costs: Simple Regression
Simple regression results from the data of Adriana Corporation (exercise 26) are as follow:
Overhead = $217,610 + (88.61 * labor-hours)
Correlation Coefficient .610
Estimate overhead if the company expects the plant to operate at a monthly average of 3,000 labor-hours next year.
Only need help with question 5-30 but I've provided 5-26 because its need to answer any questions.© BrainMass Inc. brainmass.com October 25, 2018, 4:57 am ad1c9bdddf
The problem deals with estimating overhead costs with a linear equation.
Linear regression and Correlation
A. What is linear regression?
b. What can linear regression do for you - both in a general business sense and specifically to your place of employment, or circle of influence?
c. What are some of the limitations of regression analysis?
a. What is correlation analysis and why is it important to us when we are using regression analysis?
b. Provide a definition of R and R squared? What is the relationship between the two numbers?
c. What is the equation for a straight line? Give a brief example of each of the variables involved.
a.What is the difference between a strong negative and a strong positive R?
b. What does zero correlation tell you? What about a correlation of positive or negative one?
c. What is the relationship between the independent and dependent variable? Can the independent and dependent variables be interchanged?