(Appendix) Moira Manufacturing has been using direct labor hours as a basis to predict indirect labor costs. Company management has asked the controller’s staff to evaluate machine hours as an alternative prediction base because indirect labor costs have been difficult for the company to predict reliably and control. The following data are from the latest 6 months of activity:

a. Using least squares regression, estimate the variable and fixed values for the formula y = a + hX using direct labor hours.

b. Repeat part a using machine hours as the prediction base.

c. Compute the coefficient of correlation, coefficient of determination, and standard error of the estimate for the equation estimated in part a.

d. Repeat part c using the equation estimated in part b.

e. Based on your computations in parts c and

d, are direct labor hours or ma¬ chine hours the better predictor of indirect labor costs? Explain.LO1

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DIRECT MACHINE MONTH LABOR HOURS HOURS LABOR COSTS 1 425 123456 3,025 $5,049 460 2,750 5,921 410 2,973 +,968 480 3,264 5,297 502 4,167 5,410 418 2,897 4,998