which regression equation is best why explain 684922
Sorrentino CompanySorrentino Company, which has been in business for one year, manufactures specialty Italian pastas. The pasta products start in the mixing department, where durum flour, eggs, and water are mixed to form dough.The dough iskneaded, rolled flat, and cut into fettucine or lasagna noodles, then dried and packaged.Paul Gilchrist, controller for Sorrentino Company, is concerned because the company has yet to make a profit. Sales were slow in the first quarter butreally picked up by the end of the year. Over the course of the year, 718,200 boxes were sold. Paul is interested in determining how many boxes must be sold to break even. He has begun to determine relevant fixed and variable costs and has accumulated the following per unit data:Price $0.90Direct materials 0.35Direct labor 0.25He has had more difficulty separating overhead into fixed and variable components. In examining overhead related activities, Paul has noticed that machine hour appear to be closely correlated with units in that 100 boxes of pasta can be produced per machine hour. Setups are important batch level activity. Paul has accumulated the following information on overhead costs, number of setups, and machine hours for the past 12 months.MonthOverheadNumber of SetupsMachine HoursJanuary$5,700 18595February4,5006560March4,89012575April5,50015615May6,24020660June5,10010552July5,53216630August5,40912602September5,30011635October5,00012550November5,35014593December5,47014615Selling and administrative expenses, all fixed, amounted to $185,000 last year.In the second year of operations, Sorrentino Company has decided to expand into the production of sauces to top its pastas. Sauces are also started in the mixing department, using the same equipment. The sauces are mixed, cooked, and packaged into plastic containers. One jar of sauce is priced at $2 and required $0.75 of direct materials and $0.50 of direct labor. 50jars of sauce can be produced per machine hour. The production manager believes that with careful scheduling, he can keep the total number of setups (for both pasta and sauce) to the same number as used last year. The marketing director
expects to increase selling expense by$25,000 per year to promote the new product and believes Sorrentino Company can sell twoboxes of pasta for every one jar of sauce.Required:1.Separate overhead into fixed and variable components using regression analysis. Run three regressions, using the following independence variables: (a) number of setups, (b) number of machine hours, and (c) a multiple regression using both number of setups and machines. Which regression equation is best? Why?2.Using the results from (1) above, calculate the number of boxes of pasta which must be sold to break even beforethe expansion into theproduction of sauces.3.Now consider the production of sauces. Using the results of multiple regression equation, calculate the break even number of boxes of pasta and jars of sauce.4.Suppose that the production manager is wrong and that the number of setups doubles. Calculate the new break even number of boxes of pasta and jars of sauce.5.Refer to the original data. Suppose that only 30 jars of sauce can be produced per machine hour and thatSorrentino Company willsell3boxes of pastafor every one jar of sauce. Calculate the new break even number of boxes ofpasta and jars of sauce.6.Explain howuncertainty in the sales mix and in cost estimates affectthe break even points for Sorrentino Company.