What percentage of the variation in costs is explained

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Reference no: EM132478389

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

0

3

$2,833,000

51,130

14,730

310

1

4

$2,660,050

44,940

13,080

280

1

5

$2,470,410

36,700

11,130

245

2

6

$2,515,770

43,780

11,020

230

4

7

$2,785,010

47,790

13,440

235

6

8

$2,825,310

55,160

15,500

265

5

9

$2,976,240

62,490

17,910

285

0

10

$3,051,170

67,250

19,140

310

0

11

$3,371,720

72,520

20,320

325

0

12

$3,432,340

77,380

21,470

370

1

13

$3,357,380

76,390

22,120

385

0

14

$3,288,030

70,910

21,230

360

4

15

$3,261,980

65,580

20,020

345

3

16

$3,109,190

59,910

18,570

330

2

17

$3,008,840

53,420

17,330

315

3

18

$2,845,260

51,120

16,040

295

0

19

$2,901,020

58,830

16,720

275

3

20

$3,211,170

69,620

19,760

325

0

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.

Reference no: EM132478389

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