Regression analysis, Service Company. Bob Jones owns a catering company that prepares food and beverages for banquets and parties. For a standard party the cost on a per-person basis is:

Jones is quite certain about his estimates of the food, beverages, and labor costs but is not as comfortable with the overhead estimate. The overhead estimate was based on the actual data for the past 12 months, which are presented here. These data indicate that overhead costs vary with the direct labor-hours used. The $14 estimate was determined by dividing total overhead costs for the 12 months by total labor-hours.

Jones has recently become aware of regression analysis. He estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable:

y = $48,271 + $3.93X

1. Plot the relationship between overhead costs and labor-hours. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.

2. Using data from the regression analysis, what is the variable cost per person for a standard party?

3. Bob Jones has been asked to prepare a bid for a 200-person standard party to be given next month. Determine the minimum bid price that Jones would be willing to submit to recoup variablecosts.

Transcribed Image Text:

Food and beverages Labor (0.5 hour x $10 per hour) Overhead (0.5 hour x $14 per hour) Total cost per person $15 S27