Shumway Company is making plans for the introduction of a new product that it will sell for $10 per unit. The following estimates have been made for manufacturing costs assuming 100,000 units will be produced in the first year:
Direct materials - $180,000
Direct labor - $135,000 (the labor rate is $9 an hour for 15,000 hours)
Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on the total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and will provide the basis for overhead cost estimates for the new product.
Simple Regression Analysis Results
Dependent Variable - Factory overhead costs
Independent variable - Direct labor-hours
Computed values:
What percentage of variation in the overhead costs is explained by the independent variable?