Question - Glorious Accounting Information Analysts are a group of consultants who have been hired to advice a client who runs a manufacturing business which makes plastic containers for salads. You are hired to analyse the basic information as to what drives overheads.
Your assistant has gathered thirty months of data for production runs, machine hours and overhead costs for each month. Machine hours is the number of hours the machine runs for a month. Overhead is the total amount of indirect costs for the client factory
Production runs is the number of times the machine runs (starting, warming up, and shutting down).
Your assistant then runs two models:
1. Model 1: Overhead is the dependent variable and Machine Hours is the independent variable.
2. Model 2. Overhead cost is the dependent variable. There are TWO independent variables Machine Hours and Production runs
Required:
1. Write the equation for model 1. Use the equation in for Model 1 to estimate overhead if 1,850 machine hours are worked.
2. If the actual cost is $91,000, is this business losing control given the t value is 2.04 for 28 degrees of freedom at 95% confidence,
3. Write the equation for Model 2. What is the estimated overhead for 1,800 machine hours are worked and 50 production runs;
4. What is the confidence range for the cost per machine hour and the cost for production run for 95% where t = 2.04 for 28 degrees of freedom. Comment on this range for cost per production run as well as cost per machine hours.