The Norcross Company Has Traditionally Estimated Manufacturing Overhead Costs Using

The Norcross Company has traditionally estimated manufacturing overhead costs using production volume. Some of the production managers believe that the number of setups may also have an impact on monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and number of setups for 2020.
$$\begin{array} { c c c r } \text { Month } & \begin{array} { c } \text { Production } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Manufacturing } \\\text { Overhead Cost }\end{array} & \begin{array} { c } \text { Number } \\\text { of Setups }\end{array} \\1 & 50,000 & \$ 800,100 & 17 \\2 & 65,000 & 752,500 & 16 \\3 & 40,000 & 795,100 & 21 \\4 & 55,000 & 822,750 & 16 \\5 & 30,000 & 771,225 & 21 \\6 & 25,000 & 706,200 & 15 \\7 & 60,000 & 843,000 & 19 \\8 & 80,000 & 935,200 & 22 \\9 & 77,000 & 901,750 & 20 \\10 & 43,000 & 786,400 & 17 \\11 & 50,000 & 819,600 & 19 \\12 & 70,000 & 880,900 & 21\end{array}$$
Regression analysis results of the information presented above are as follows:
Ordinary regression:
Equation: $650,398 + $3.1061 × units
r-square: .707
Multiple regression:
Equation: [$464,481 + ($2.5356 × units)] + [($11,631.6048 × number of set ups)]
r-square: .867
Required:
(a.) Use the results from the ordinary regression and estimate next month's manufacturing overhead costs, assuming the company is planning to produce 75,000 units. (final answer should be rounded to the nearest whole dollar)
(b.) Use the results from the multiple regression and estimate the next month's manufacturing overhead costs, assuming the company is planning to produce 75,000 units with 18 set ups. (final answer should be rounded to the nearest whole dollar)
(c.) Comment on which regression seems to be more appropriate under these circumstances. What additional information would you like to see? Be specific.

Correct Answer:

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(a.)
Total manufacturing overhead costs ...

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