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Statistics Multiple Regression Model

Statistics Multiple Regression Model

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Richard Ellis, the director of cost operations of American Micro Devices, wishes to develop an accurate cost function to explain and predict support costs in the company’s printed circuit board assembly operation. Mr. Ellis is concerned that the cost function that he currently uses—based on direct labor costs—is not accurate enough for proper planning and control of support costs. Mr. Ellis directed one of his financial analysts to obtain a random sample of 25 weeks of support costs and three possible cost drivers in the circuit-board assembly department: direct labor hours, number of boards assembled and average cycle time of boards assembled. (Average cycle time is the average time between start and certified completion—after quality testing—of boards assembled during a week.) Much of the effort in this assembly operation is devoted to testing for quality and reworking defective boards, all of which increase the average cycle time in any period. Therefore, Mr. Ellis believes that average cycle time will be the best support cost driver. Mr. Ellis wants his analyst to use regression analysis to demonstrate which cost driver best explains support costs.
Richard Ellis, the director of cost operations of American Micro Devices, wishes to develop an accurate cost function to explain and predict support costs in the company’s printed circuit board assembly operation. Mr. Ellis is concerned that the cost function that he currently uses—based on direct labor costs—is not accurate enough for proper planning and control of support costs. Mr. Ellis directed one of his financial analysts to obtain a random sample of 25 weeks of support costs and three possible cost drivers in the circuit-board assembly department: direct labor hours, number of boards assembled and average cycle time of boards assembled. (Average cycle time is the average time between start and certified completion—after quality testing—of boards assembled during a week.) Much of the effort in this assembly operation is devoted to testing for quality and reworking defective boards, all of which increase the average cycle time in any period. Therefore, Mr. Ellis believes that average cycle time will be the best support cost driver. Mr. Ellis wants his analyst to use regression analysis to demonstrate which cost driver best explains support costs.

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Published by: ClassOf1.com on Feb 01, 2013
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Statistics
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Sub: Statistics Topic: Multiple regression
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Question:Statistics Multiple Regression Model
Richard Ellis, the director of cost operations of American Micro Devices, wishes to develop an accurate
cost function to explain and predict support costs in the company’s printed circuit board assembly
operation. Mr. Ellis is concerned that the cost function that he currently uses
based on direct laborcosts
is not accurate enough for proper planning and control of support costs. Mr. Ellis directed oneof his financial analysts to obtain a random sample of 25 weeks of support costs and three possiblecost drivers in the circuit-board assembly department: direct labor hours, number of boardsassembled and average cycle time of boards assembled. (Average cycle time is the average timebetween start and certified completion
after quality testing
of boards assembled during a week.)Much of the effort in this assembly operation is devoted to testing for quality and reworking defectiveboards, all of which increase the average cycle time in any period. Therefore, Mr. Ellis believes thataverage cycle time will be the best support cost driver. Mr. Ellis wants his analyst to use regressionanalysis to demonstrate which cost driver best explains support costs.Weekassemble supportcosts ydirect laborhours X1Number of Boardscompleter , X2Average cycle time (hours) X31 $66,402 7619 2983 186.442 56943 7678 2830 139.143 60337 7816 2413 151.134 50096 7659 2221 138.35 64241 7646 2701 158.636 60846 7765 2656 148.717 43119 7685 2495 105.858 63412 7962 2128 174.02
 
 
Sub: Statistics Topic: Multiple regression
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
9 59283 7793 2127 155.310 60070 7732 2127 162.211 53345 7771 2338 142.9712 65027 7842 2685 176.0813 58220 7940 2602 150.1914 65406 7750 2029 194.0615 35268 7954 2136 100.5116 46394 7768 2046 137.4717 71877 7764 2786 197.4418 61903 7635 2822 164.6919 50009 7849 2178 141.9520 49327 7869 2244 123.3721 44703 7576 2195 128.2522 45582 7557 2370 106.1623 43818 7569 2016 131.4124 62122 7672 2515 154.8825 52403 7653 2942 140.07
1.
Plot support costs, Y, versus each of the possible cost drivers, X1, X2, and X3.
2.
Use regression analysis to measure cost functions using each of the cost drivers.
3.
Interpret the economic meaning of the best cost function.

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