Your company is preparing an estimate of its production costs for the coming period. The controller estimates that direct materialscosts are $45 per unit and that direct labor costs are $23 per hour. Estimating overhead, which is applied on the basis of direct laborcosts, is difficult.The controller's office estimated overhead costs at $4,000 for fixed costs and $17 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 = $10,511 + $15.94 per unitLance also reports that the correlation coefficient for the regression is 0.81 and says, "With 81% of the variation in overhead explainedby 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:MonthLEMASTOSOHN31245678910111213Overhead Unit Production$57,06460,68377,00856,62481,70072,47363,90473,52377,59760,06861,70173,87873,5133,0703,2804,2103,0403,4403,9503,3704,0504,1603,2303,4004, 1203,920The company controller is somewhat surprised that the cost estimates are so different. You have therefore been assigned to checkLance's equation. You accept the assignment with glee. Removing any outliers identified in the scattergraph, use Excel to perform a new regression analysis. (Round "Intercept" value to 5decimal places and "Unit Production" to 7 decimal places.)CoefficientsInterceptUnit productionWhat is the cost equation with the new results? (Round variable costs per unit to 2 decimal places.)Overhead costUnits.

Answered: Your company is preparing an estimate…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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