Cost Estimation Using Regression Analysis Harvard Case Solution & Analysis

Cost Estimation Using Regression Analysis Case Solution

Question 1

In order to determine which cost driver is better among direct labor cost and direct labor hours for estimating direct labor related manufacturing overheads, we have generated two different regression models for Option A and Option B. The results of Option A are as follows:

Regression Statistics

Regression Statistics

Direct Labor <a  href=

cost Residual Plot" width="300" height="190" /> Direct Labor cost Residual Plot

Normal Probability Plot

Normal Probability Plot

The results of option B for direct labor hours are shown below:

ANOVA

ANOVA

DLHs per ship Residual Plot

DLHs per ship Residual Plot

Normal Probability Plot

Normal Probability Plot

If we compare both the options above, then the direct labor hours and the direct labor cost both have a significant impact on the direct labor related manufacturing overheads however, the relationship and the percentage explanation of direct labor related manufacturing overheads as a result of direct labor hours is much higher as compared to direct labor cost.

Cost Estimation Using Regression Analysis Harvard Case Solution & Analysis

The relationship between direct labor related manufacturing overheads and direct labor hours is 99% and percentage explanation is 98% as shown by adjusted r square value. Therefore, direct labor hours is a better cost driver for estimating the direct labor related manufacturing overheads so we recommend option B..................

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