Flexible Budget, Multiple Regression The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table Month Overhead Costs Machine Hours Number of Setups Number of Purchase Orders January $ 32,296 1,000 20 216 February 31,550 930 18 250 March 36,280 1,100 21 300 April 36,867 1,050 23 270 May 36,790 1,170 22 285 June 37,800 1,200 25 240 July 40,024 1,235 27 237 August 39,256 1,190 24 303 September 33,800 1,070 20 255 October 33,779 1,210 22 195 November 37,225 1,207 23 270 December 27,500 1,084 15 150 Totals $423,167 13,446 260 2,971 Required 1 Run a multiple regression equation using machine hours, number of setups, and number of purchase orders as independent variables Prepare a flexible budget for overhead for the 12 months using the results of this regression equation (Round the regression coefficients to the nearest cent and predicted overhead to the nearest dollar ) If there is no variance, enter 0 for the amount and select NA in the last column Enter all your answers as positive amounts Muir Company Flexible Budget for Overhead Month Predicted Overhead Actual Overhead Variance favorable or Unfavorable January $ $ $ February March April May June July August September October November December Totals $ $ $ Feedback A valid multiple regression analysis assumes or requires that the dependent variable is measured using an ordinal, interval, or ratio scale the residuals follow an F distribution the independent variables and the dependent variable have a linear relationship the observations are autocorrelated 2 Now, suppose that the controller remembers that the factory throws two big parties each year, one for the 4th of July and the other for Christmas Rerun the multiple regression with machine hours, number of setups, and number of purchase orders, and add a dummy variable called Party (This variable takes the value one for months with a factory sponsored party, and zero otherwise ) Prepare a flexible budget for the 12 months using the results of this regression (Round the regression coefficients to the nearest cent and each predicted overhead amount to the nearest dollar ) If there is no variance, enter 0 for the amount and select NA in the last column Enter all your answers as positive amounts Muir Company Flexible Budget for Overhead Month Predicted Overhead Actual Overhead Variance Unfavorable or Favorable January $ $ $ February March April May June July August September October November December Total $ $ $

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Flexible Budget, Multiple Regression The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting.

Flexible Budget, Multiple Regression

The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table.

Month	Overhead Costs	Machine Hours	Number of Setups	Number of Purchase Orders
January	$ 32,296	1,000	20	216
February	31,550	930	18	250
March	36,280	1,100	21	300
April	36,867	1,050	23	270
May	36,790	1,170	22	285
June	37,800	1,200	25	240
July	40,024	1,235	27	237
August	39,256	1,190	24	303
September	33,800	1,070	20	255
October	33,779	1,210	22	195
November	37,225	1,207	23	270
December	27,500	1,084	15	150
Totals	$423,167	13,446	260	2,971

Required:

1. Run a multiple regression equation using machine hours, number of setups, and number of purchase orders as independent variables. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the regression coefficients to the nearest cent and predicted overhead to the nearest dollar.)

If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.



Muir Company Flexible Budget for Overhead
Month	Predicted Overhead	Actual Overhead	Variance	favorable or Unfavorable
January	$	$	$
February
March
April
May
June
July
August
September
October
November
December
Totals	$	$	$

Feedback

A valid multiple regression analysis assumes or requires that:

the dependent variable is measured using an ordinal, interval, or ratio scale
the residuals follow an F-distribution
the independent variables and the dependent variable have a linear relationship
the observations are autocorrelated

2. Now, suppose that the controller remembers that the factory throws two big parties each year, one for the 4th of July and the other for Christmas. Rerun the multiple regression with machine hours, number of setups, and number of purchase orders, and add a dummy variable called Party. (This variable takes the value one for months with a factory-sponsored party, and zero otherwise.) Prepare a flexible budget for the 12 months using the results of this regression. (Round the regression coefficients to the nearest cent and each predicted overhead amount to the nearest dollar.)

If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.



Muir Company Flexible Budget for Overhead
Month	Predicted Overhead	Actual Overhead	Variance	Unfavorable or Favorable
January	$	$	$
February
March
April
May
June
July
August
September
October
November
December
Total	$	$	$