Question

Long Haul, a truck parts manufacturer, is attempting to determine cost behavior of its overhead activities for its truck parts plant. One of the major costs involved is power costs. Two possible drivers have been noted: machine hours and temperature outside. Long Haul is located in a northern state and power costs increase in the colder months. The following data for the costs involved has been accumulated in the table below Month Overhead Cost Machine Hours Temperature Outside February $9700 2600 35 March 9650 2500 40 April 10052 3000 50 May 9400 2700 65 June 9584 3000 70 July 8480 2500 75 August 8550 2400 80 September 9735 2900 65 October 10500 3000 60 Long Haul used regression to determine the best line for the data with the alternative cost drivers. With machine hours as cost driver, the following results were obtained: Intercept is 3983 Slope is 2.02 R-square is .582 With outside temperature as cost driver, the following results were obtained: Intercept is 10979 Slope is -24.37 R-square is .333 1.Given the information above, if you had to pick just one driver,which cost driver is better? (Input a 1 for machine hours or a 2 for temperature) 2.Assume machine hours is chosen as the cost driver. How much of the overhead is fixed? Write out the function for the line on paper. Describe what the function means, in this fashion: When no machine hours are used, overhead costs are ??. Overhead (increases or decreases?) by ?? for each additional machine hour incurred. 3.Assume outside temperature is chosen as the cost driver. What are variable costs per unit? Write out the function for the line on paper. Describe what the function means, in this fashion: When the average monthly temperature is 0 degrees, overhead costs are ??. Overhead (increases or decreases?) by ?? for each additional degree of temperature.

Answer 1