Question

Meyer Grove Company has large overhead costs relative to its direct material and direct labor costs. Because of the
significance of these overhead costs, management is trying to better understand what is driving them.
The management team has asked the accountant to gather select information for some of the activities
and product costs that they believe might be driving the overhead costs. The possible cost drivers
that the team is looking at include direct labor hours, machine hours, direct material costs, and number of material moves.
Data pertaining to the past 24 months for overhead costs as well as usage information for the possible cost drivers
is presented below:
				# of material
	DL hours	Machine hours	DM costs	moves	Overhead costs
Jul-09	3,200	2,000	15,000	11	195,000
Aug-09	3,950	2,250	21,500	16	215,000
Sep-09	3,500	2,400	14,700	12	175,000
Oct-09	4,200	1,950	20,000	18	260,000
Nov-09	4,500	2,500	24,500	20	300,000
Dec-09	4,100	2,600	20,500	22	275,000
Jan-10	3,500	3,000	26,000	12	230,000
Feb-10	3,900	2,750	32,500	10	305,000
Mar-10	4,300	2,000	31,500	9	320,000
Apr-10	4,150	1,850	34,000	15	315,000
May-10	4,450	2,150	33,000	11	340,000
Jun-10	3,850	2,300	32,000	20	280,000
Jul-10	3,900	1,800	34,000	22	270,000
Aug-10	4,050	2,250	32,000	16	318,000
Sep-10	4,300	2,200	27,500	13	315,000
Oct-10	4,350	2,500	28,000	21	310,000
Nov-10	4,100	2,100	31,500	15	355,000
Dec-10	4,400	2,250	22,500	19	325,000
Jan-11	4,250	2,500	25,500	16	315,000
Feb-11	4,300	2,400	32,000	20	345,000
Mar-11	4,150	2,450	26,000	18	350,000
Apr-11	4,500	2,550	24,500	22	360,000
May-11	4,650	2,300	30,000	18	330,000
Jun-11	4,250	2,250	33,500	21	365,000
Required: (15 points) THIS EXAM IS TO BE COMPLETED ON YOUR OWN.
Please type your answers in a Word document and upload it to the 'Regression Exam' folder
in the Assignments folder on our course D2L site by 11:59pm on Monday, Dec. 3, 2018.
I do not want you to copy and paste any of the regression output; I just want you to explain
why you chose one particular cost formula over the other possible formulas, and in the process
you should cite relevant statistics, plot characteristics, etc., to back up your decision.
1. Using regression, determine the best cost formula to explain this company's
monthly overhead costs. Explain how and why you reached this conclusion.
Clearly write out the complete cost formula (round all amounts/rates to the nearest cent).
A complete answer will thoroughly explain not only why this cost formula is valid, but also
why this model's cost driver (or multiple cost drivers) is/are better than any other
combination of cost drivers available to predict monthly overhead costs.
(For purposes of checking validity, all relevant regression assumptions should be named and
adequately evaluated. Be sure to explain how you evaluated these assumptions.)
2. Using the regression model that you specified in part 1, predict this company's
overhead costs for next month if the following cost driver levels are expected:
	direct labor hours		4000
	machine hours		2400
	direct material costs		25,000
	number of material moves		17

Answer 1

Highest Square of R is Better For Predication of Overhead.
From above All Graph,
Highest Square of R is 0.615 when Direct Labor hours Used as Cost driver. It means Suitable Cost driver is Direct labor Hour.
Using above Cost driver, Overhead Cost equation is y = 117.63x - 185568
Direct Labor hours is better Cost driver because of it has highest Square of R.
It means 185568 is Fixed Overhead and Variable overhead per Direct labor hour is 117.63
Answer 2
Overhead cost for Next month
Fixed overhead	185,568
Variable overhead (4000*117.63)	470,520
Overhead cost for Next month	656,088