METHOD OF LEAST SQUARES USING COMPUTER SPREADSHEET PROGRAM
The controller for Beckham Company believes that the number of direct labor hours is associated with overhead cost. He collected the following data on the number of direct labor hours and associated factory overhead cost for the months of January through August.
|
Month
|
Number of Direct Labor Hours
|
Overhead Cost ($)
|
|
January
|
689
|
5,550
|
|
February
|
700
|
5,590
|
|
March
|
720
|
5,650
|
|
April
|
690
|
5,570
|
|
May
|
680
|
5,570
|
|
June
|
590
|
5,410
|
|
July
|
750
|
5,720
|
|
August
|
675
|
5,608
|
Required:
1. Using a computer spreadsheet program such as Excel, run a regression on these data. Print out your results.
2. Using your results from Requirement 1, write the cost formula for overhead cost. (You may round the fixed cost to the nearest dollar and the variable rate to the near- est cent.)
3. What is R2 based on your results? Do you think that the number of direct labor hours is a good predictor of factory overhead cost?
4. Assuming that expected September direct labor hours are 700, what is expected factory overhead cost using the cost formula in Requirement 2?