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Problem - XP Jet (Cost Estimation)
Cost managers for XP Jet, maker of commercial printers, have selected the following cost drivers: units produced, labor hours, number of customer accounts maintained and number of design changes. Following is cost data for past 20 months:
Month
Total Costs
Units
Labor hours
Customer accounts
Design Changes
1
$3,001,000
62,500
19,000
350
0
2
$3,023,970
56,470
17,160
335
3
$2,833,000
51,130
14,730
310
4
$2,660,050
44,940
13,080
280
5
$2,470,410
36,700
11,130
245
6
$2,515,770
43,780
11,020
230
7
$2,785,010
47,790
13,440
235
8
$2,825,310
55,160
15,500
265
9
$2,976,240
62,490
17,910
285
10
$3,051,170
67,250
19,140
11
$3,371,720
72,520
20,320
325
12
$3,432,340
77,380
21,470
370
13
$3,357,380
76,390
22,120
385
14
$3,288,030
70,910
21,230
360
15
$3,261,980
65,580
20,020
345
16
$3,109,190
59,910
18,570
330
17
$3,008,840
53,420
17,330
315
18
$2,845,260
51,120
16,040
295
19
$2,901,020
58,830
16,720
275
20
$3,211,170
69,620
19,760
Required -
(a) Using multiple regression, estimate the equation for total costs using the above cost drivers. What percentage of the variation in costs is explained by the regression equation?
(b) Assuming the following levels of cost drivers for the coming month, what is the estimated cost based on the regression equation?
74,000 units
21,500 LH
390 customer accounts
2 design changes
(c) If you are the plant manager, based on the output of the regression, do you believe that each individual cost driver is accurately explaining the costs incurred? If not, what could be the reason(s)? Perform relevant analysis to support your reasoning.
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