Hankuk Electronics started production on a sophisticated new smartphone running the Android operating system in January 2013. Given the razor-thin margins in the consumer electronics industry, Hankuk’s success depends heavily on being able to produce the phone as economically as possible. At the end of the first year of production, Hankuk’s controller, Inbee Kim, gathered data on its monthly levels of output, as well as monthly consumption of direct labor-hours (DLH). Inbee views labor-hours as the key driver of Hankuk’s direct and overhead costs. The information collected by Inbee is provided below:

1. Inbee is keen to examine the relationship between direct labor consumption and output levels. She decides to estimate this relationship using a simple linear regression based on the monthly data. Verify that the following is the result obtained by Inbee:
Regression 1: Direct labor-hours = a + (b * Output units)

2. Plot the data and regression line for the above estimation. Evaluate the regression using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
3. Inbee estimates that Hankuk has a variable cost of $ 17.50 per direct labor-hour. She expects that Hankuk will produce 650 units in the next month, January 2014. What should she budget as the ex-pected variable cost? How confident is she of her estimate?

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Output (Units) Direct Labor-Hours 684 492 660 504 612 636 648 600 648 696 672 675 1,400 920 875 670 760 765 735 660 695 710 690 700 January February March April June September October November December Variable Coefficient Standard Error t-Value Constant Independent variable: 0utput units 0,59 0.76 34524 589.07 0.71 0.93 = 0.054; Durbin-Watson statistic = 0.50