97) In order to better predict setup costs, the plant manager has asked the computer centre to use the least squares method to generate a printout for use in estimating setup costs.

The following computer printout was generated and given to the plant manager.



Correlation Coefficient.98

Activity Variable:Number of Setups

The plant manager brought the printout to you and said, “How am I supposed to use this to estimate setup costs?  This printout is worthless”

a. Explain how the printout information can be used to estimate setup costs.

b. Estimate setup costs if 30 setups are expected next month.

c. What percentage change in setup costs can be explained by changes in the number of setups?

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