Multiple Regression, Confidence Intervals, Reliability of Cost Formulas Randy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months, Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities' costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a 14-month period are as follows: Inspection Costs Hours of Inspection Number of Batches $17,689 100 10 18,350 120 20 13,125 60 15 28,000 320 30 30,560 240 31,755 200 40,750 280 29,500 230 47,570 350 36,740 270 43,500 350 26,780 200 28,500 140 22328 1 0 0 0 25 40 35 50 45 38 18 28 17,000 160 14 1. Calculate the cost formula for inspection costs using the two drivers, inspection hours and number of batches. In the formula, round your answer for the intercept to the nearest whole number and round the X variables 1 and 2 to the nearest cent. Where X1 = hours of inspection, and X2 = number of batches. Y = $ 5,289 + 55.82 X1 + $ 428.69 X2 Are both activity drivers useful? Yes What is the adjusted R? Round to the nearest whole percent. 87 % 2. Using the formula developed in Requirement 1, calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. Prepare a 90 percent confidence interval for this prediction. (Refer to Exhibit 3.14). In your computations, round X1 and X2 to 2 decimals, round intercept, Yf and the standard error to the nearest dollar and round t-values to three decimals. Enter the final answers rounded to the nearest dollar. Y = 34,896 X Yf $ X