Chapter 6, Problem 21P

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:   Month MaintenanceCost   Machine Hours Jan. $ 5,000       600   Feb.   3,644       440   Mar.   4,400       610   Apr.   3,337       480   May   5,222       660   June   3,390       410   July   3,618       470   Aug.   5,384       630   Sept.   5,114       590   Oct.   4,883       590   Nov.   3,925       430   Dec.   3,850       350   Sum $ 51,767       6,260   Average $ 4,313.92       521.67       Average cost per hour ($51,767/6,260) = $8.27 (rounded to the nearest cent)   r = 0.85977 r2 = 0.73920   The percent of the total variance that…

Midgett Co. has accumulated data to use in preparing its annual profit plan for the upcoming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff suggested that linear regression be employed to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis are as follows:   Month MaintenanceCost   Machine Hours Jan. $ 5,040       620   Feb.   3,648       420   Mar.   4,320       520   Apr.   3,331       390   May   5,221       650   June   3,550       400   July   3,655       430   Aug.   5,365       690   Sept.   5,110       640   Oct.   4,866       610   Nov.   3,944       460   Dec.   3,790       440   Sum $ 51,840       6,270   Average $ 4,320.00       522.50       Average cost per hour ($51,840/6,270) = $8.27 (rounded to the nearest cent)r = 0.99821r2 = 0.99780The percent of the total variance that can be…

Balcom Enterprises is planning to introduce a new product that will sell for $150 a unit. Manufacturing cost estimates for 25,500 units for the first year of production are: Direct materials $1,530,000. Direct labor $969,000 (based on $19 per hour × 51,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable    Factory overhead costs Independent variable    Direct labor hours Intercept    $    131,000     Coefficient on independent variable    $    6.00     Coefficient of correlation        0.944     R2        0.836     Based on this information, what percentage of the variation in overhead costs is explained by the independent variable?