Regression Analysis

You have recently been hired as a cost accountant at Travenol Laboratories. The controller is an "old school" accountant and has heard that you recently graduated with a degree in accounting. One day he summons you to his office to assign you a task. He says, "I understand that recently educated accountants are using a variety of statistical tools to determine causality between costs and their respective drivers. We have been using direct labor hours as our cost driver for our manufacturing overhead costs for as long as I have been here. In the last few years our production processes have become more automated and I am not sure whether direct labor hours is the appropriate allocation basis for our manufacturing overhead costs. I would like you to use some of those statistical tools to determine whether there is a more appropriate cost driver."

You leave his office recognizing that this is a tremendous career opportunity. If you can convince your boss that you can use statistical analysis to determine the best cost driver, you will have established yourself in the department as a knowledgeable professional. It is good fortune that one of your projects in your cost class dealt specifically with this type of analysis.\

Year	MOH	DLH	DL$	MH	DM$
2000	800,748	8,988	174,816	11,580	150,457
2001	964,305	7,053	105,789	14,274	124,180
2002	959,859	14,329	214,929	12,395	138,785
2003	841,455	9,749	146,230	14,121	143,074
2004	848,457	14,959	224,381	19,522	166,752
2005	934,087	12,971	234,558	13,996	129,963
2006	938,737	10,180	112,704	10,029	127,207
2007	801,328	13,488	202,319	15,120	126,507
2008	968,839	8,298	84,470	15,842	144,981
2009	865,098	10,562	158,428	11,552	163,323
2010	760,935	12,771	191,558	17,836	129,906
2011	817,208	8,694	170,409	13,964	119,208
2012	778,955	9,549	183,236	17,727	108,481
2013	976,866	7,575	73,631	17,699	131,462
2014	768,552	12,156	182,339	16,711	133,599
2015	934,020	5,221	38,314	11,585	117,617
MOH=Manufacturing Overhead					MH=Machine Hours
DLH=Direct Labor Hours					DM$=Direct Material Dollars
DL$=Direct Labor Dollars

Required:
1. Perform a regression on DLH, DL$, MH and DM$ and comment on the following for each;
a. The equation
b. Goodness of fit
c. Significance of independent variables
d. Any autocorrelation
2. What would you recommend and why?