(Appendix 2A)Here Are the Results Using Regression Analysis on Maintenance

question 138

Essay

(Appendix 2A)Here are the results using regression analysis on maintenance and repair costs for the production machines in a manufacturing company. Two cost drivers were chosen: number of machine setups (X1)and machine hours (X2).
Variable Coefficient t-statistic p-value
intercept 70,324.15 2.81 p<0.01
X1 14.83 2.39 p <0.05
X2 2.07 2.24 p<0.05
Adjusted R-square = 0.87
a)Write an equation for total cost based upon the regression analysis.
b)What does the Adjusted R-square tell you about the quality of information that would be produced using this cost driver? Explain.
c)Is it economically plausible that the number of setups and machine hours could drive the costs of the maintenance and repair for the machines? Explain.

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Definitions:

Contingency Approach

A management theory that suggests the best course of action in business or decision-making depends on the specific circumstances or factors present at the time.

Walter A. Shewart

An American statistician and engineer, known for his works in the field of quality control and the development of the control chart.

Statistical Quality Control

A methodical approach to managing quality that uses statistical techniques to monitor and control processes and outputs.

Bell Laboratories

An industrial research and scientific development company renowned for its significant contributions to technology and science, originally part of AT&T and later Nokia.