Applewood Electronics (AE) manufactures smart phone and other interactive devices for the telecommunications industries. The Management of AE is seeking to determine the driver of indirect manufacturing cost for production process. The products range from basic models to complex models with multiple functions and the allocation of indirect cost has been adversely affecting the profit margins as it is believed that cost are inaccurate. The accounting department prepared regression analysis based on three different cost drivers with the intension of choosing the driver which would be more appropriate for the estimation of total production overhead cost. The results of three regressions with each of the three competing cost drivers are presented in Exhibit 5-1.

	Variable	Coefficient	Standard Error
Number of solder points	Constant	942,000	3.410
	Independent variable	10.25	3.221
r2 = 0.39
Number of Inspections	Constant	1,240,000	3.896
	Independent Variable	2.25	1.05
r2 = 0.29
Production run time (hours)	Constant	750,000	2.793
	Independent variable	3.75	1.45
r2 = 0.27

The critical t-value for each regression is 2.055

Required

1. Prepare the linear equations for each regression. (3 Marks)

2. Which of the cost drivers is the best for the estimating yearly Production overheads in terms of economic plausibility, strength of the linear relationship and statistical significance of the slope coefficient? (10 Marks)

3. How would multiple linear regression analysis be beneficial to the management of AE in choosing the best cost driver for estimating production overhead cost? (4 Marks)