Answered: Overhead Costs Billable Hours 395000…

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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Overhead Costs	Billable Hours
395000	2000
440000	3000
460000	4000
513000	5000
580000	6000
605000	7000

Develop a simple linear regression model between billable hours and overhead costs.

Overhead

Costsequals=enter your response hereplus+left parenthesis nothing right parenthesisenter your response heretimes×Billable

Hours

(Round the constant to one decimal place as needed. Round the coefficient to four decimal places as needed. Do not include the $ symbol in your answers.)

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Follow-up Question

Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm?

Interpret the fixed term,

b 0b0,

if appropriate. Choose the correct answer below.

It is not appropriate to interpret

b 0b0,

because its value is the predicted billable hours for overhead costs of 0 dollars, but the firm cannot have overhead costs of 0 dollars associated with a client.

The value of

b 0b0

is the predicted overhead costs for 0 billable hours.

It is not appropriate to interpret

b 0b0,

because its value is the predicted overhead costs for 0 billable hours, but someone with 0 billable hours would not actually be a client of the firm.

For each increase of 1 unit in billable hours, the predicted overhead costs are estimated to increase by

b 0b0.

The value of

b 0b0

is the predicted billable hours for an overhead cost of 0 dollars.

For each increase of 1 unit in overhead costs, the predicted billable hours are estimated to increase by

b 0b0.

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