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CoursHeroTranscribedText: 3-27 * * Regression analysis, service company (CMA, adapted) OBJECTIVES 4, 5 Bob White owns a catering company that prepares food and beverages for banquets and parties. For a standard party the cost on a per-person basis is: Food and beverages $15 Labour (0.5 hour x $10 per hour) Overhead (0.5 hour x $14 per hour) Total cost per person $27 Bob is quite certain about his estimates of the food, beverages and labour costs but is not as comfortable with the overhead estimate. The overhead estimate was based on the actual data for the past 12 months, which are presented here. These data indicate that overhead costs vary with the direct labour-hours used. The $14 estimate was determined by dividing total overhead costs for the 12 months by total labour-hours. Month Labour-hours Overhead costs January 2500 $55 000 February 2700 59 000 March 3000 60 000 April 4200 64000 May 7500 77 000 June 5500 71 000 July 6500 74000August 4500 67 000 September 7000 75 000 October 4500 68 000 November 3100 62 000 December 6500 73 000 Total 57 500 $805 000 Bob has recently become aware of regression analysis. He estimated the following regression equation with overhead costs as the dependent variable and labour-hours as the independent variable: y = $48271 + $3.93X Required 1 Plot the relationship between overhead costs and labour-hours. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit and slope of the regression line. 2 Using data from the regression analysis, what is the variable cost per person for a standard party? 3 Bob White has been asked to prepare a bid for a 200-person standard party to be given next month. Determine the minimum bid price that Bob would be willing to submit to recoup variable costs

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