Dave Ladouceur owns a catering company that prepares banquets and parties for both individual and business functions throughout the year. Mr. Ladouceur€™s business is seasonal, with a heavy schedule during the summer months and the year-end holidays and a light schedule at other times. During peak periods there are extra costs. He shuts down in January to repair and maintain and clean.

One of the major events Mr. Ladouceur€™s customers request is a cocktail party. He offers a standard cocktail party and has developed the following cost structure on a per-person basis.

Mr. Ladouceur is quite certain about his estimates of the food, beverages, and labour costs but is not as comfortable with the overhead estimate. This estimate was based on the actual data for the past 12 months, presented below. These data indicate that overhead expenses vary with the direct labour-hours expended. The $15.70-per-hour estimate was determined by dividing total overhead expended for the 12 months by total labour-hours.
Mr. Ladouceur has recently become aware of regression analysis. He estimated the following regression equation with overhead costs as the dependent variable (y) and labour- hours as the independent variable (X):
y = $31,886 + $9.45X + e
REQUIRED
1. Using Excel and the data provided in the table, complete a regression analysis at a confidence level of 95%.
2. What important information is presented in the r2, t-Stat, and P-values?
3. What is the range within which Mr. Ladouceur can be confident of the values of a and b? 4. Mr. Ladouceur:has- been asked to prepare a bid for a 200-person cocktail party to be given next month. Determine the minimum bid price that Mr. Ladouceur would be willing to submit to earn a positive contribution margin using his estimate and the results of the linear regression analysis. Explain Mr. Ladouceur€™s problem with using the linear regression results.
5. What further information does the chart of the residuals provide?
6. Months Labour-Hours Overhead Costs

Transcribed Image Text:

Time/Person Cost/hourTotal Cost Food and beverages (direct materials) Labour (in hours) Average overhead (in hours) Total costs per person $15.00 6.00 9.42 30.42 0.50 0.60 $12.00 15.70 C-0000000000000 58084284 ,0 6 465 9878-90 0 e-20262580 $7779888 70 25555 O 5 155 , 234756474367 5 br elee Sep Oct Nov