Question
Velman Company wants to determine the factors that are associated with overhead. The controller for Velman constructed a multiple regression equation using the following independent
Velman Company wants to determine the factors that are associated with overhead. The controller for Velman constructed a multiple regression equation using the following independent variables: direct labor hours, number of setups, and number of purchase orders. The analysis was run using the past 60 months of data. The follow- ing printout is obtained:
Parameter |
Estimate | t for Ho Parameter = 0 |
Pr > t | Error of Parameter |
Intercept | 2,130 | 65.00 | 0.0001 | 225.000 |
Direct labor hours | 17 | 3.17 | 0.0050 | 3.256 |
Number of setups | 810 | 4.90 | 0.0050 | 108.256 |
Number of |
|
|
|
|
purchase orders | 26 | 7.96 | 0.0250 | 5.103 |
R2 = 0.95
Se = 150
Observations 60
Required
1. Write out the cost formula for monthly overhead for Velman Company.
2. If Velman budgets the following for next month, what is the budgeted overhead cost?
Direct labor hours | 600 |
Number of setups | 50 |
Number of purchase orders | 120 |
3. Suppose that Velman’s engineers found a way to reduce the number of setups by 50 percent. How much would be saved in overhead cost for the following month?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
1 Let Hours of direct labor should be H The number of setups should be S Be P for the number of purc...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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