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1 December, 21:22

Sago Co. uses regression analysis to develop a model for predicting overhead costs. Two different cost drivers (machine hours and direct materials weight) are under consideration as the independent variable. Relevant data were run on a computer using one of the standard regression programs, with the following results. Machine hours Coefficient Y-Intercept 2,500B 5.0 R^2=.70 Direct materials weight Y-Intercept 4,600 B 2.6 R^2=.50 What regression equation should be used? A) Y = 2,500 + 5.0X B) Y = 2,500 + 3.5X C) Y = 4,600 + 2.6X D) Y = 4,600+1.3X

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  1. 2 December, 00:34
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    A) Y = 2,500 + 5.0X

    Explanation:

    Regression equation is:

    Y = a + bx

    a = Y - intercept

    b = Slope of the line.

    x = independent variable

    Y = dependent variable.

    Since the R² value is 0.7 for the machine hours which means the there is a 70% chance that the variation in Y can be explained using a linear relationship between X & Y for Direct materials R² = 0.5 hence we will use Machine hours as regression equation.

    Y = 2500 + 5X

    2500 = Y - intercept

    5 = Slope

    X = dependent variable
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