Reference no: EM13241548

The BXC Company manufactures various types of parts for automobiles. The manger of the factory wants to get a better understanding of the overhead costs. The overhead costs include supervision, indirect labor, supplies, payroll taxes, overtime premiums, depreciation, and and a number of miscellaneous items such as insurance utilities, and janitorial and maintenance expenses. Some of these overhead costs are fixed in the sense that they do not vary appreciably with the volume of work being done, whereas others are variable and vary directly with the volume of work. The fixed overhead costs tend to come from the supervision, depreciation, and miscellaneous categories, whereas the variable overhead costs tend to come from the indirect labor, supplies, payroll taxes, and overtime premiums categories. However, it is not easy to draw a clear line between the fixed and variable overhead components.
The BXC manager has tracked total overhead costs over the past 36 months. To help explain these, he has also collected data on two vari-
ables that are related to the amount of work done at the factory. These variables are:
² MachHrs: number of machine hours used during the month
² ProdRuns: the number of separate production runs during the month

The first of these is a direct measure of the amount of work being done. To understand the second, we note that BXC manufactures parts in fairly large batches. Each batch corresponds to a production run. Once a production run is completed, the factory must set up for the next run. During this setup there is typically some downtime while the machinery is reconfigured for the part type scheduled for production in the next batch.
Therefore, the manager believes both of these variables might be responsible (indifferent ways) for variations in overhead costs.
The data is:

Month MachHrs ProdRuns Overhead
1 1539 31 99798
2 1284 29 87804
3 1490 27 93681
4 1355 22 82262
5 1500 35 106968
6 1777 30 107925
7 1716 41 117287
8 1045 29 76868
9 1364 47 106001
10 1516 21 88738
11 1623 37 105830
12 1376 37 88730
13 1327 49 100624
14 1178 50 98857
15 1491 37 102622
16 1667 41 108059
17 1769 34 110054
18 1104 44 91892
19 1196 46 98693
20 1794 29 110530
21 1379 38 96883
22 1448 32 99593
23 1505 32 94564
24 1420 42 105752
25 1475 27 93224
26 1118 34 75398
27 1433 58 113137
28 1589 26 85609
29 1585 32 98498
30 1493 33 101803
31 1124 36 88371
32 1536 28 102419
33 1678 41 117183
34 1723 35 107828
35 1413 30 88032
36 1390 54 117943

Estimate two simple OLS (only one independent variable) equations, and use them to tell the manger something about overhead costs.