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

Question

Business

Verena

10 August, 14:02

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

+4

Answers (1)

Know the Answer?

Arthur · Answer 1

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