Regression analysis, activity-based costing, choosing cost drivers. Jill Goldstein has been collecting data over the last year in an effort to understand the cost drivers of distribution costs at Waterloo Corporation, a manufacturer of brass door handles. Distribution costs include the costs of organizing different shipments as well as physically handling and moving packaged units. Goldstein believes that, because the product is heavy, number of units moved will affect distribution costs significantly but she is not certain that this is the case. Goldstein collects the following monthly data for the past 12 months.

REQUIRED ~ 1. Using Excel, produce plots of the monthly data and the regression lines underlying each of the following cost functions:

a. Distribution costs = a + (b x number of packaged units moved)

b. Distribution costs = a + (b x number of shipments made)
Which cost driver for support overhead costs would you choose? Explain your answer briefly based on the statistics provided by the analysis.
2. Goldstein anticipates moving 40,000 units in 220 shipments next month. Using the cost function you chose in requirement 1, what distribution costs should Goldstein budget?
3. If Goldstein chose the wrong cost function—the cost function other than the one you chose in requirement 1—and 40,000 units were moved in 220 shipments, would you expect actual costs to be lower than, to be greater than, or to closely approximate the predictions made using the “wrong” cost driver and cost function? Explain your answer briefly and discuss any other implications of choosing the “wrong” cost driver and cost function.LO1

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Month Made January February Distribution Costs Number of Packaged Units Moved Number of Shipments Made $ 33,600 51,000 200 24,000 43,000 210 March 20,400 28,000 185 April 38,400 67,000 315 May 48,000 73,000 335 June 28,800 54,000 225 July 26,400 37,000 190 August 42,000 72,000 390 September 50,400 71,000 280 October 27,600 56,000 360 November 39,600 52,000 380 December 26,400 45,000 270 Total $405,600 649,000 3,340 Goldstein estimates the following regression equations: y= $1,618.45+ ($0.595 x Number of packaged units moved) y $12,500.57+ ($76.52 x Number of shipments made)