Your company is preparing an estimate of its production costs for the coming period. The controller estimates that direct materials costs are $45 per unit and that direct labor costs are $21 per hour. Estimating overhead, which is applied on the basis of direct labor costs, is difficult. The controller's office estimated overhead costs at $3,600 for fixed costs and $18 per unit for variable costs. Your colleague, Lance, who graduated from a rival school, has already done the analysis and reports the "correct" cost equation as follows: Overhead = $10,600 $16.05 per unit Lance also reports that the correlation coefficient for the regression is 0.82 and says, "With 82 percent of the variation in overhead explained by the equation, it certainly should be adopted as the best basis for estimating costs." When asked for the data used to generate the regression, Lance produces the following: Month Overhead Unit Production 1 $57,144 3,048 2 60,756 3,248 3 77,040 4,176 4 56,412 3,000 5 81,396 3,408 6 72,252 3,928 7 63,852 3,336 8 73,596 4,016 9 77,772 4,120 10 60,048 3,192 11 61,632 3,368 12 73,920 4,080 13 73,248 3,888 The company controller is somewhat surprised that the cost estimates are so different. You have therefore been assigned to check Lance's equation. You accept the assignment with glee.

Required:

Prepare a scattergraph relating overhead cost to the number of units produced.

Instructions:

1. Click on a point to the right of the graph. 2. Click within the graph to place the point. 3. To enter exact coordinates, click on the point and then click on the processing wheel symbol and then enter the exact coordinates in the dialog box that pops up. 4. Click OK.

Removing any outliers identified in the scattergraph, use Excel to perform a new regression analysis. (Round "Intercept" value to 5 decimal places and "Unit Production" to 7 decimal places.)

What is the cost equation with the new results? (Round variable cost per unit to 2 decimal places.)