Problem 4 (Regression Analysis, Service Company) Bobby Gonzales owns a catering company that prepares banquets and parties for both individual and business functions throughout the year. Gonzales" business is seasonal, with a heavy schedule during the summer months and the year-end holidays and a light schedule at other times. During peak periods there are extra costs. One of the major events Gonzales' customers request is a cocktail party. He offers a standard cocktail party and has developed the following cost structure on a per person basis. Food and bevernges Labor (0.5 hourN PIO per hour) Overhead (0.5 hour x P14 per hour) Total costs per person PIS.00 5.00 7.00 127.00 Gonzales is quite certain about his estimates of the food, beverages, and labor costs but is not as comfortable with the overhead estimate. This estimate was based on the actual data for the past 12 months presented below. These data indicate that overhead costs vary with the direct labor hours used. The P14 estimate was determined by dividing total overhead costs for the 12 months by total labor-hours. Month January February Labor-Hours 2,500 2,700 3,000 4,200 7,500 5.500 6,500 4,500 7,000 Overhead Costs P 55,000 59,000 March 60,000 April May 64,000 77,000 71,000 74,000 67,000 75,000 68,000 62,000 73.000 P8OS.000 June July August September October November December Total 4,500 3,100 6.500 S7.500 Gonzales has recently become aware of regression analysis. He estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable. y- P48,271 + P3.93X Required 1. Plot the relationship between overhead costs and labor-hours. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
Problem 4 (Regression Analysis, Service Company) Bobby Gonzales owns a catering company that prepares banquets and parties for both individual and business functions throughout the year. Gonzales" business is seasonal, with a heavy schedule during the summer months and the year-end holidays and a light schedule at other times. During peak periods there are extra costs. One of the major events Gonzales' customers request is a cocktail party. He offers a standard cocktail party and has developed the following cost structure on a per person basis. Food and bevernges Labor (0.5 hourN PIO per hour) Overhead (0.5 hour x P14 per hour) Total costs per person PIS.00 5.00 7.00 127.00 Gonzales is quite certain about his estimates of the food, beverages, and labor costs but is not as comfortable with the overhead estimate. This estimate was based on the actual data for the past 12 months presented below. These data indicate that overhead costs vary with the direct labor hours used. The P14 estimate was determined by dividing total overhead costs for the 12 months by total labor-hours. Month January February Labor-Hours 2,500 2,700 3,000 4,200 7,500 5.500 6,500 4,500 7,000 Overhead Costs P 55,000 59,000 March 60,000 April May 64,000 77,000 71,000 74,000 67,000 75,000 68,000 62,000 73.000 P8OS.000 June July August September October November December Total 4,500 3,100 6.500 S7.500 Gonzales has recently become aware of regression analysis. He estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable. y- P48,271 + P3.93X Required 1. Plot the relationship between overhead costs and labor-hours. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
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...
Related questions
Question
Transcribed Image Text:May
77.000
Problem 4 (Regression Analysis, Service Company)
Bobby Gonzales owns a catering company that prepares banquets and parties
for both individual and business functions throughout the year. Gonzales
business is seasonal, with a heavy schedule during the summer months and
the year-end holidays and a light schedule at other times. During peak
periods there are extra costs.
One of the major events Gonzales' customers request is a cocktail party. He
offers a standard cocktail party and has developed the following cost
structure on a per person basis.
Food and bevernges
Labor (0.5 hour x PIO per hour)
Overhead (0.5 hour x P14 per hour)
Total costs per person
PI5.00
5.00
7.00
P27.00
Gonzales is quite certain about his estimates of the food, beverages, and
labor costs but is not as comfortable with the overhead estimate. This
estimate was based on the actual data for the past 12 months presented
below. These data indicate that overhead costs vary with the direct labor-
hours used. The P14 estimate was determined by dividing total overhead
costs for the 12 months by total labor-hours.
Month
January
February
Overhead Costs
P 55,000
59,000
60,000
64,000
Labor-Hours
2,500
2,700
March
3.000
4,200
April
7,00
S00
5,500
July
August
September
October
November
December
Total
6,500
74,000
67,000
75.000
68,000
62,000
73,000
P805.000
200
4,500
7,000
4,500
3,100
6.500
57.500
Gonzales has recently become aware of regression analysis. He estimated
the following regression equation with overhead costs as the dependent
variable and labor-hours as the independent variable.
y- P48,271+ P3.93X
Required
1. Plot the relationship between overhead costs and labor-hours. Draw the
regression line and evaluate it using the criteria of economic plausibility,
goodness of fit, and slope of the regression line.
2. Using data from the regression analysis, what is the variable cost per
person for a cocktail party?
3. Bobby Gonzales has been asked to prepare a bid for a 200-person
cocktail party to be given next month. Determine the minimum bid price
that Gonzales would be willing to submit to earn a positive contribution
margin.
(CMA Adapted)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 2 images
Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.