DavyCompanyisdevelopingacostfunctiontoestimatethemanufacturingoverheadratefornextyear.Thecompany has

60monthsofdataonoverheadcostsandcostdrivers.Ifyouuseregressionanalysistodevelop

thecost

function.Afterdiscussingpossiblecostdriverswithseveralengineersandmanagersfamiliarwith

the operationsofthecompany.Theyallagreedthatmachinehoursandsetupswereplausiblecostdrivers,butonemanagerobservedthat"manyofthemachineswerereplacedandprocessesinvolvingsetupswerereorganizedinmonth23ofyourdata."Inflationhasbeennegligibleduringhistime.

Please use a spreadsheet to help answer and explain the answers

1) A multipleregressionovertheappropriatetimeperiod,wherethecostfunctionisoftheformy=a+b1X1+b2X2,with X1asmachinehoursandX2assetups.Shouldtheappropriateperiodbeall60months,orjustthemonthsafterthe renovation? Why?

2)Whatis thecostfunctionformulticollinearitybycompletingacorrelationanalysisonthetwoindependent

variablesovertheappropriatetimeperiod?

3)There are univariateregressionsovertheappropriatetimeperiod,wherethecostfunctionisoftheformy=a+bX,whereXis

1. Setups
2. Hours

4)Whichcostequationismostappropriate?Why?

5)Fromquestion four please use theequationidentifiedasmostappropriateinquestion4toestimatethe overheadcostwhenmachinehoursare150orsetupsare60.Limittheprecisionof

Months	Hours	Setups	Overhead Cost
1	113	46	$ 17,413
2	129	53	$ 17,904
3	189	64	$ 24,695
4	130	58	$ 19,065
5	148	60	$ 20,656
6	173	69	$ 24,658
7	121	46	$ 16,267
8	199	77	$ 25,683
9	147	54	$ 20,265
10	173	72	$ 22,676
11	194	66	$ 24,682
12	118	50	$ 16,673
13	155	58	$ 20,767
14	203	71	$ 27,669
15	193	79	$ 27,890
16	189	60	$ 23,901
17	157	63	$ 22,706
18	134	52	$ 17,693
19	174	63	$ 23,666
20	155	53	$ 20,662
21	128	48	$ 18,360
22	177	64	$ 18,370
23	118	50	$ 18,673
24	150	55	$ 20,700
25	192	68	$ 24,201
26	169	76	$ 27,717
27	164	67	$ 23,913
28	143	61	$ 21,091
29	164	64	$ 23,696
30	133	64	$ 22,708
31	164	63	$ 23,661
32	145	53	$ 20,663
33	118	48	$ 18,364
34	167	61	$ 18,366
35	108	47	$ 18,687
36	140	52	$ 20,701
37	182	65	$ 24,204
38	159	73	$ 27,722
39	164	64	$ 23,904
40	143	58	$ 21,108
41	164	58	$ 23,710
42	133	58	$ 22,718
43	145	47	$ 20,689
44	118	42	$ 18,383
45	167	58	$ 18,366
46	108	44	$ 18,679
47	140	49	$ 20,722
48	182	62	$ 24,217
49	159	70	$ 27,706
50	164	61	$ 23,930
51	143	55	$ 21,107
52	164	58	$ 23,706
53	133	58	$ 22,716
54	108	44	$ 18,675
55	145	49	$ 20,701
56	187	62	$ 24,208
57	164	70	$ 27,706
58	169	61	$ 23,903
59	148	55	$ 21,092
60	169	58	$ 23,705