Problem - The University Logo Company needs to predict the labor cost in producing specialty coffee mugs. The following production information is available:
Year Production Volume Labor Hours Labor Dollars
2006 2,550 1,700 $25,500
2007 3,400 1,950 $31,200
2008 2,400 1,600 $27,200
2009 4,600 2,000 $36,000
2010 3,200 1,900 $36,100
2011 2,800 1,775 $35,500
2012 2,650 1,725 $36,225
2013 2,700 1,755 $ TBA
Wage rates have steadily increased since 2006; however, management expects no further increases in 2014.
a. Select the most appropriate independent variable for estimating labor cost. Explain the reason for your selection.
b. Use regression to develop an equation [cost formula] to predict the 2014 labor cost of producing specialty mugs.
c. Create a scattergram of your results.
d. Estimate labor needs if 2014 production is estimated at 3,200 units.
e. What are some considerations that should be made before making a decision based on the results of your analysis? What would you suggest that management do in order to make the best decision?