I really need help on question #2 of this project! I am completely stuck

Sorrentino Company Sorrentino Company, which has been in business for one year, manufactures specialty Italian pastas. The pasta products start in the mixing department, where durum flour, eggs, and water are mixed to form dough. The dough is kneaded, rolled flat, and cut into fettucine or lasagna noodles, then dried and packaged. Paul Gilchrist, controller for Sorrentino Company, is concerned because the company has yet to make a profit. Sales were slow in the first quarter but really picked up by the end of the year. Over the course of the year, 718,200 boxes were sold. Paul is interested in determining how many boxes must be sold to break even. He has begun to determine relevant fixed and variable costs and has accumulated the following per unit data: Price $0.90 Direct materials 0.35 Direct labor 0.25 He has had more difficulty separating overhead into fixed and variable components. In examining overhead-related activities, Paul has noticed that machine hour appear to be closely correlated with units in that 100 boxes of pasta can be produced per machine hour. Setups are important batch-level activity. Paul has accumulated the following information on overhead costs, number of setups, and machine hours for the past 12 months.

Months	Overhead	Number of Setups	Machine Hours
January	$5,800	18	592
February	$4,500	6	560
March	$4,790	12	575
April	$5,500	15	615
May	$6,250	20	660
June	$5,100	10	552
July	$5.532	16	630
August	$5,409	12	602
September	$5,300	11	635
October	$4,900	12	550
November	$5,450	14	582
December	$5,480	14	618

Selling and administrative expenses, all fixed, amounted to $185,000 last year. In the second year of operations, Sorrentino Company has decided to expand into the production of sauces to top its pastas. Sauces are also started in the mixing department, using the same equipment. The sauces are mixed, cooked, and packaged into plastic containers. One jar of sauce is priced at $2 and required $0.75 of direct materials and $0.50 of direct labor. 50 jars of sauce can be produced per machine hour. The production manager believes that with careful scheduling, he can keep the total number of setups (for both pasta and sauce) to the same number as used last year. The marketing director

expects to increase selling expense by $45,000 per year to promote the new product and believes Sorrentino Company can sell two boxes of pasta for every one jar of sauce. Required: 1. Separate overhead into fixed and variable components using regression analysis. Run three regressions, using the following independent variables: (a) number of setups, (b) number of machine hours, and (c) a multiple regression using both number of setups and machines. Which regression equation is best? Why? (4 pts) 2. Using the results from (1) above, calculate the number of boxes of pasta which must be sold to break even for the year before the expansion into the production of sauces. Tips: (a) Carefully interpret the regression coefficients (i.e., what do the intercept and slope represent?) (b) The setup cost is a batch-level cost (i.e., a step cost). How should it be treated when computing the break-even point? (c) Check figure: 847,761 boxes to break even.