Reference no: EM132005074

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?