Linda Olson owns a professional char- acter business in a large metropolitan area. She hires local college students to play these characters at children's parties and other events. Linda provides balloons, cupcakes, and punch. For a standard party the cost on a per-person basis is as follows: Balloons, cupcakes, and punch Labor (0.25 hour x $20 per hour) Overhead (0.25 hour x $40 per hour) Total cost per person 10 $22 Linda is quite certain about the estimates of the materials and labor costs, but is not as comfortable with the overhead estimate. The overhead estimate was based on the actual data for the past 9 months, which are presented here. These data indicate that overhead costs vary with the direct labor-hours used. The $40 estimate was determined by dividing total overhead costs for the 9 months by total labor-hours. Month April May Labor-Hours Overhead Costs $ 65,000 1,400 1,800 2,100 2,200 71,000 73,000 76,000 67,000 68,000 66,500 60,000 June July August September October 1,650 1,725 1,500 1,200 November December 1,900 15,475 72,500 $619,000 Total Linda has recently become aware of regression analysis. She estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable: y = $43,563 + $14.66X
Linda Olson owns a professional char- acter business in a large metropolitan area. She hires local college students to play these characters at children's parties and other events. Linda provides balloons, cupcakes, and punch. For a standard party the cost on a per-person basis is as follows: Balloons, cupcakes, and punch Labor (0.25 hour x $20 per hour) Overhead (0.25 hour x $40 per hour) Total cost per person 10 $22 Linda is quite certain about the estimates of the materials and labor costs, but is not as comfortable with the overhead estimate. The overhead estimate was based on the actual data for the past 9 months, which are presented here. These data indicate that overhead costs vary with the direct labor-hours used. The $40 estimate was determined by dividing total overhead costs for the 9 months by total labor-hours. Month April May Labor-Hours Overhead Costs $ 65,000 1,400 1,800 2,100 2,200 71,000 73,000 76,000 67,000 68,000 66,500 60,000 June July August September October 1,650 1,725 1,500 1,200 November December 1,900 15,475 72,500 $619,000 Total Linda has recently become aware of regression analysis. She estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable: y = $43,563 + $14.66X
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Using data from the regression analysis, what is the variable cost per person for a standard party?
Transcribed Image Text:Linda Olson owns a professional char-
acter business in a large metropolitan area. She hires local college students to play these characters at
children's parties and other events. Linda provides balloons, cupcakes, and punch. For a standard party the
cost on a per-person basis is as follows:
Balloons, cupcakes, and punch
Labor (0.25 hour x $20 per hour)
Overhead (0.25 hour x $40 per hour)
Total cost per person
10
$22
Linda is quite certain about the estimates of the materials and labor costs, but is not as comfortable with
the overhead estimate. The overhead estimate was based on the actual data for the past 9 months, which
Transcribed Image Text:are presented here. These data indicate that overhead costs vary with the direct labor-hours used. The $40
estimate was determined by dividing total overhead costs for the 9 months by total labor-hours.
Month
April
May
Labor-Hours
Overhead Costs
$ 65,000
1,400
1,800
2,100
2,200
71,000
73,000
76,000
67,000
68,000
66,500
60,000
June
July
August
September
October
1,650
1,725
1,500
1,200
November
December
1,900
15,475
72,500
$619,000
Total
Linda has recently become aware of regression analysis. She estimated the following regression equation
with overhead costs as the dependent variable and labor-hours as the independent variable:
y = $43,563 + $14.66X
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