Regression; choosing among models (Chapter Appendix). Tilbert Toys (IT) makes the popular Floppin’ Freddy Frog and Jumpin’ Jill Junebug dolls in batches. TT has recently adopted activity-based costing. TT incurs setup costs for each batch of dolls that it produces.

TT uses “number of setups” as the cost driver for setup costs.

TT has just hired Bebe Williams, an accountant. Bebe thinks that “number of setup hours” might be a better cost driver because the setup time for each product is different. Bebe collects the following data.

REQUIRED 1. Estimate the regression equation for

(a) setup costs and number of setups and

(b) setup costs and number of setup hours. You should obtain the following results:
® Regression 1: Setup costs = a + (b x Number of setups)LO1

Transcribed Image Text:

Month Number of setups Number of setup hours Setup costs 12 195 920 $52,300 2 240 $1,340 63,850 3 100 580 28,740 4 220 1,900 118,420 5 140 1,840 89,440 6 230 1,950 106,880 789 210 1,490 104,810 150 600 45,040 185 1,640 110,520