Farnsworth Company has gathered data on its overhead activities and associated costs for the past 10 months. Tracy Heppler, a member of the controller's department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows:

Month Receiving Orders Receiving Cost
1 1,000 $18,000
2 700 15,000
3 1,500 28,000
4 1,200 17,000
5 1,300 25,000
6 1,100 21,000
7 1,600 29,000
8 1,400 24,000
9 1,700 27,000
10 900 16,000
Suppose that Tracy has gathered two more months of data:

Month Receiving Orders Receiving Cost
11 1,200 $28,000
12 950 17,500
Note:For the following requirements, round the intercept terms to the nearest dollar, round the variable rates to the nearest cent, and R2 to two decimal places.

Required:

1. Run two regressions using a computer spreadsheet program such as Excel. First, use the method of least squares on the first 10 months of data. Then, use the method of least squares on all 12 months of data. Select the results for the intercept, slope, and R2 for each regression. Enter the R2 values as decimals to two decimal places rather than as percentages.

10 Months' Data 12 Months' Data
Intercept $ $
Slope
R2
2. Conceptual Connection: On your own paper, prepare a scattergraph using all 12 months of data. Which month appears to be an outlier?