Loving Toys Company is attempting to determine cost behavior of its overhead activities for its Kansas City plant. One of the major activities is the setup activity. Two possible ac¬

tivity drivers have been mentioned: setup hours and number of setups. The plant controller has accumulated the following data for the setup activity:

Required:
1. Estimate a regression equation with setup hours as the activity driver and the only in¬
dependent variable. If the Kansas City plant forecasts 2,600 setup hours for the next month, what will be the budgeted setup cost?
2. Estimate a regression equation with number of setups as the activity driver and the only independent variable. If the Kansas City plant forecasts 80 setups for the next month, what will be the budgeted setup cost?
3. Which of the two regression equations do you think does a better job of predicting setup costs? Explain.
4. Run multiple regression to determine the cost equation using both activity drivers. What are the budgeted setup costs for 2,600 setup hours and 80 setups?

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Month Setup Costs Setup Hours Number of Setups February March $ 7,700 2,000 7,650 2,100 April 10,052 3,000 50 May 9,400 2,700 June 9,584 3,000 July 8,480 2,500 August 8,550 2,400 September 9,735 2,900 October 10,500 3,000 R88888 70 50 60 20 40 60 50 90