Cost Behavior Miller Restorations expanded the size of its antique fixtures division 6 months ago, necessitating the use of temporary workers in its shipping department. The shipping department consists of a manager plus 10 other permanent positions: 4 supervisors and 6 loaders. The 4 supervisors and 6 loaders provide the minimum staff and frequently must be supplemented by additional workers, especially during the weeks when the volume of shipments is heavy. Thus, the number of people shipping the orders frequently averages over 30 per week, i.e., 10 permanent persons plus 20 temporary workers. The temporary workers are hired through a local agency. Miller Restorations must use temporary workers to maintain a minimum daily shipment rate of 95 percent of orders presented for shipping. The loss of efficiency from using temporary workers is minimal, and the $10.00 per hour cost of temporary workers is less than the $15.00 per hour for the loaders and $22.50 per hour for the supervisors on Miller Restorations's permanent staff. The agency requires Miller Restorations to utilize each temporary worker for at least 4 hours each day. Bob, the shipping manager, schedules temporary help based on forecasted orders for the coming week. Supervisors serve as loaders until temporary help is needed. A supervisor stops loading when the ratio of loaders to supervisors reaches 7:1. Bob knows that he will need temporary help when the forecasted average daily orders exceed 300. Bob has frequently requested from 2 to 4 extra temporary workers per day to guard against unexpected rush orders. If there was not enough work, he would dismiss the extra people at noon after 4 hours of work. The agency has not been pleased with Bob's practice of overhiring and has notified Miller Restorations that it is changing its policy. From now on, if a person is dismissed before an 8-hour assignment is completed, Miller Restorations will still be charged for an 8-hour day plus mileage back to the agency for reassignment. This policy would go into effect the following week. This penalty could cost Miller Restorations up to $500 per week in labor cost for which it receives no benefit, so management needs to better estimate the number of people needed each weeka quick solution until they could study the work flow. Bill Miller, having taken a statistics class, suggested a regression analysis using the number of orders shipped as the independent variable and the number of workers (permanent plus temporary) as the dependent variable. Bill indicated that data for the past year was available and that the analysis could be done quickly on the accounting department's microcomputer. Bill completed the 2 regression analyses that are presented below. The first regression was based on the data for the entire year. The second regression excluded the weeks when only the 10 permanent staff persons were used; these weeks were unusual and appeared to be out of the relevant range. Bob was not familiar with regression analysis and, therefore, was unsure how to implement this technique. He wondered which regression data he should employ, i.e., which one was better. When he recognized that the regression was based on actual orders shipped by week, Bill told him he could use the forecasted shipments for the week to determine the number of workers needed. Regression Equation: W = a + bS S = orders shipped Regression 1 Regression Data (Daily Data for 52 Weeks) (Daily Data for 38 Weeks) a 5.062 .489 b .023 .028 Standard error of the estimate (SE) 2.012 .432 95% confidence for W 3.943 .848 R-Squared .962 .998 t value of coefficient 32.85 140 1. Using Regression 1 based on data from a full year, calculate the number of temporary workers Bob would plan to hire for a forecast indicating 1,200 shipments per day. 2. Which of the 2 regressions appears to be better? Explain your answer. 3. Explain the circumstances under which Bob can use the regression in his planning for temporary workers. 4. Explain whether the regression analysis that Miller Restorations employed in this situation could be improved. If it cannot be improved, explain why. 5. How can the regression analysis help Miller Restorations be more competitive