Interpreting Regression Results—MultipleChoice: Alpha Company is making plans for the introduction of a new product that it will sell for $6 a unit. The following estimates have been made for manufacturing costs on 100,000 units to be produced the first year:

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and will provide the basis for overhead cost estimates for the new product.

Required:

a. What percentage of the variation in overhead costs is explained by the indepen- dent variable?

(1) 90.8 percent. (2) 42 percent. (3) 48.8 percent. (4) 95.3 percent. (5) Some other amount.

b. The total overhead cost for an estimated activity level of 20,000 direct labor- hours would be:

(1) $42,000. (2) $82.000. (3) $122,000. (4) $222,000. (5) Some other amount.

c. What is the expected contribution margin per unit to be earned during the first year on 100.000 units of the new product? (Assume all marketing and admin- istrative costs are fixed.)

(1) $4.49. (2) $4.89. (3) $0.30. (4) $5.10. (5) Some other amount.

d. How much is the variable manufacturing cost per unit, using the variable over- head estimated by the regression (and assuming direct materials and direct labor are variable costs)?

(1) $.90.

e. (2) $1.11. (3) $1.50. (4) $3. (5) Some other amount.

e. What is the manufacturing cost equation implied by these results, where x refers to units produced?

(1) TC = $40,000 + $1.11.x. (2) TC = $40,000 + $3.00.x. (3) TC $130,000+ $2.10.x (4) Some other equation.

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Direct materials Direct labor $50,000 $40,000 (the labor rate is $4 an hour x 10,000 hours)