1A2B DAWSON MANUFACTURING DEVELOPED THE FOLLOWING MULTIPLE REGRESSION...

15. CSO: 1A2a LOS: 1A2b

Dawson Manufacturing developed the following multiple regression equation, utilizing

many years of data, and uses it to model, or estimate, the cost of its product.

Cost = FC + a*L + b*M

Where: FC = fixed costs

L = labor rate per hour

M = material cost per pound

Which one of the following changes would have the greatest impact on invalidating the

results of this model?

a. A significant reduction in factory overheads, which are a component of fixed

costs.

b. Renegotiation of the union contract calling for much higher wage rates.

c. A large drop in material costs, as a result of purchasing the material from a

foreign source.

d. A significant change in labor productivity.