The Feline Company Has Been Having Some Difficulties Estimating Its

question 109

Essay

The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2020.
$\begin{array}{lllll}&&& \text {Average }\\&&& \text {Monthly}\\& \text { Production } & \text { Manufacturing } & \text { Production } \\\text { Month } & \text { (Units) } & \text { Overhead Cost } & \text { Lot Size }\\1 & 75,000& \$ 25,800 &20 \\2 & 90,000 & 843,875 & 19 \\3 & 65,000 & 910,125 & 24 \\4 & 80,000& 946,000 & 19 \\5 & 55,000 & 879,000 & 24\\6 & 50,000 & 825,000 & 18 \\7 & 85,000& 960,000 & 22 \\8 & 105,000& 1,053,500 & 25 \\9 & 102,000& 1,020,000& 23 \\10 & 68,000& 905,000 & 20 \\11 & 75,000 & 938,000 & 22 \\12 & 95,000 & 995,000 & 24\end{array}$

Regression analysis results of the information presented above are as follows:
Ordinary regression:
$$\begin{array} { | l | l | } \hline \text { Equation: } & \$ 691.741 + \$ 3.0692 \times \text { units } \\\hline \text { r-square: } & 0.628 \\\hline\end{array}$$
Multiple regression:
$$\begin{array} { | l | l | l | } \hline \text { Equation: } & \$ 482,172 + \$ 2.4918 \times \text { units } + \$ 1.770 .939 \times \text { lot size } \\\hline \text { r-square: } & 0.777\\\hline \end{array}$$
Required:
(a.) Use the results from the ordinary regression and estimate next month's manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (final answer should be rounded to the nearest whole dollar)
(b.) Use the results from the multiple regression and estimate the next month's manufacturing costs, assuming the company is planning to produce 92,000 units with an average lot size of 21. (final answer should be rounded to the nearest whole dollar)
(c.) Comment on which regression seems to be more appropriate under these circumstances. What additional information would you like to see? Be specific.

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Definitions:

Opportunity Cost

Overlooking potential gains available from different alternatives by settling on one choice.

Muffin

A small, baked good often sweetened and sometimes containing fruits, nuts, or chocolate, typically enjoyed as a snack or quick breakfast.

Absolute Advantage

The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.

Radios

Electronic devices for receiving radio waves and converting them into sound or other signals.