Based on the results from the three regression analyses determine which correlation provides the best estimate of the total cost equation. Explain why you selected the correlation that you did.

Based on the results from the three regression analyses determine which correlation provides the best estimate of the total cost equation. Explain why you selected the correlation that you did.

Following is a Monthly Income Statement, based on absorption costing, for Performance Drinks:
You begin to wonder if there would be any value in repackaging the income statement in a way that would report Contribution Margin as opposed to Gross Margin. You know that in order to report Contribution Margin you will need to understand your costs as variable and fixed. Unfortunately the general ledger does not specifically report costs as variable and fixed. You remember learning that regression analysis can be used to generate data that can be used to create a total cost equation. With the total cost equation we can understand our total cost as the sum of fixed costs and variable costs. After doing some research your collect the following data related to overhead and possible causal factors:
Requirement #1
Using the data above, which has also been provided electronically in Excel, run the following regression analyses:
• Linear regression analyzing total overhead cost and units sold
• Linear regression analyzing total overhead cost and machine hours used
• Multiple regression analysis analyzing total overhead cost along with both units sold and machine hours used
Requirement #2
Based on the results from the three regression analyses determine which correlation provides the best estimate of the total cost equation. Explain why you selected the correlation that you did.


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