Petruska Corp. produces a product that is very machine intensive. They have determined that machine hours are a likely explanation for manufacturing overhead costs. Therefore, machine hours is the independent variable and manufacturing overhead is the dependent variable. The results of their regression analysis produced the following:

Petruska is planning on operating at a level of 15,000 machine hours for the year. Required:
1) What is the "TC = F + VX"
cost formula for manufacturing overhead?
2) Based on the cost equation in part 1, compute the estimated overhead cost that Petruska could expect for the coming year.
3) What does the R-squared indicate? Would Petruska likely benefit from going to multiple regression analysis to determine their cost formula for manufacturing overhead?

Question

Petruska Corp. produces a product that is very machine intensive. They have determined that machine hours are a likely explanation for manufacturing overhead costs. Therefore, machine hours is the independent variable and manufacturing overhead is the dependent variable. The results of their regression analysis produced the following:
  
Petruska is planning on operating at a level of 15,000 machine hours for the year. Required:
1) What is the "TC = F + VX"
cost formula for manufacturing overhead?
2) Based on the cost equation in part 1, compute the estimated overhead cost that Petruska could expect for the coming year.
3) What does the R-squared indicate? Would Petruska likely benefit from going to multiple regression analysis to determine their cost formula for manufacturing overhead?

Quizplus · Accepted Answer

The Answer of Petruska Corp. produces a product that is very machine intensive. They have determined that machine hours are a likely explanation for manufacturing overhead costs. Therefore, machine hours is the independent variable and manufacturing overhead is the dependent variable. The results of their regression analysis produced the following:
  
Petruska is planning on operating at a level of 15,000 machine hours for the year. Required:
1) What is the "TC = F + VX"
cost formula for manufacturing overhead?
2) Based on the cost equation in part 1, compute the estimated overhead cost that Petruska could expect for the coming year.
3) What does the R-squared indicate? Would Petruska likely benefit from going to multiple regression analysis to determine their cost formula for manufacturing overhead?