Stow-a-way Luggage Ltd. manufactures luggage for the traveler concerned about excessive airline luggage fees. They have two designs of carry-on luggage. The "Exec"
is targeted to business travelers and the "Companion"
for those on a holiday. The company used simple regression to budget indirect costs of $823,400 based on the following equation: y = $542,400 + $5.62X, where X is 50,000 direct labour hours for a budgeted production of 250,000 units. At the end of the year the company's controller evaluated the actual costs for producing 220,000 units. Using simple regression that actual indirect cost of $810,825; represented by the following equation y = $535,400 + $5.75X for the 47,900 actual direct labour hours.
Required:
a. Determine the rate, efficiency/production-volume variances for the indirect costs.
b. What statistical measure of serial correlation could the controller use to determine if the independence of the residuals is within an acceptable range?

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The Answer of Stow-a-way Luggage Ltd. manufactures luggage for the traveler concerned about excessive airline luggage fees. They have two designs of carry-on luggage. The "Exec"
is targeted to business travelers and the "Companion"
for those on a holiday. The company used simple regression to budget indirect costs of $823,400 based on the following equation: y = $542,400 + $5.62X, where X is 50,000 direct labour hours for a budgeted production of 250,000 units. At the end of the year the company's controller evaluated the actual costs for producing 220,000 units. Using simple regression that actual indirect cost of $810,825; represented by the following equation y = $535,400 + $5.75X for the 47,900 actual direct labour hours.
Required:
a. Determine the rate, efficiency/production-volume variances for the indirect costs.
b. What statistical measure of serial correlation could the controller use to determine if the independence of the residuals is within an acceptable range?

Stow-A-Way Luggage Ltd