Your company is preparing an estimate of its production cost for the coming period.The controller estimates that direct material $ 45,00per unit direct labor $ 21,00per hourestimating overhead, which is applied on the basis of direct labor cost, is difficult The controller's office estimated : over head cost $ 3.600,00 for fixed cost $ 18,00 for variable cost Your colleague, Lance who graduated from a rival school, has already done the analysisand reports the correct cost equatioin as follows: over head cost $ 10.600,00 $ 16,05 per unit Lance also reports that the correlation coefficient for the regression is 0,82 and says "with 82 percent of the variation in overhead explained by the equation, it certainlyshould be adopted as the best basis for estimating cost" When asked for the data used to generate the regression, Lance produces the following: MonthOverheadUnit Production 1 $ 57.144 3.048 2 $ 60.756 3.248 3 $ 77.040 4.176 4 $ 56.412 3.000 5 $ 81.396 3.408 6 $ 72.252 3.928 7 $ 63.852 3.336 8 $ 73.596 4.016 9 $ 77.772 4.120 10 $ 60.048 3.192 11 $ 61.632 3.368 12 $ 73.920 4.080 13 $ 73.248 3.888 The company controller is somewhat surprised that the cost estimates are so different. You havetherefore been assigned to check Lance's Equation. You accept the assignment with glee. Required Analyze Lance's result and state your reason for supporting or rejecting his cost equation.

The equation derived by Lance: 10.6000+16.05 per Unit In terms of X and Y, the equation will be Y =…

Answered: The company controller is somewhat…

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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Your company is preparing an estimate of its production cost for the coming period.
The controller estimates that
	direct material	$ 45,00	per unit
	direct labor	$ 21,00	per hour

estimating overhead, which is applied on the basis of direct labor cost, is difficult

The controller's office estimated :
	over head cost	$ 3.600,00 for fixed cost
			$ 18,00 for variable cost

Your colleague, Lance who graduated from a rival school, has already done the analysis
and reports the correct cost equatioin as follows:
	over head cost	$ 10.600,00
			$ 16,05 per unit

Lance also reports that the correlation coefficient for the regression is 0,82 and says
"with 82 percent of the variation in overhead explained by the equation, it certainly
should be adopted as the best basis for estimating cost"

When asked for the data used to generate the regression, Lance produces the following:
	Month	Overhead	Unit Production
	1	$ 57.144	3.048
	2	$ 60.756	3.248
	3	$ 77.040	4.176
	4	$ 56.412	3.000
	5	$ 81.396	3.408
	6	$ 72.252	3.928
	7	$ 63.852	3.336
	8	$ 73.596	4.016
	9	$ 77.772	4.120
	10	$ 60.048	3.192
	11	$ 61.632	3.368
	12	$ 73.920	4.080
	13	$ 73.248	3.888

The company controller is somewhat surprised that the cost estimates are so different. You have
therefore been assigned to check Lance's Equation. You accept the assignment with glee.

Required
Analyze Lance's result and state your reason for supporting or rejecting his cost equation.

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