The Baker Company wants to develop a budget to predict how overhead costs vary with activity levels.
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The Baker Company wants to develop a budget to predict how overhead costs vary with activity levels. Management is trying to decide whether direct labor hours (DLH) or units produced is the better measure of activity for the firm. Monthly data for the preceding 24 months appear in the file P14_40.xlsx. Use regression analysis to determine which measure, DLH or Units (or both), should be used for the budget. How would the regression equation be used to obtain the budget for the firm’s overhead costs?
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