HW help. please?

Question

An organization’s accountant is estimating next period’s total overhead costs. She performed two regression analyses, one based on direct labor hours and the other based upon machine hours. The results of the two regressions are as follows:

Total overhead = $150,000 + $4 x direct labor hours

Adjusted R-square = 0.35

Total overhead = $130,000 + $5 x machine hours

Adjusted R-square = 0.77

For the next period the accountant anticipates using 28,000 direct labor hours and 26,000 machine hours. Based on the information provided, what is the best estimate for total overhead for the next period?

Show your work, please.

a. $260,000

b. $254,000

c. $262,000

d. $270,000

Answer 1

Of the given answers, I'd say a) which is the value given by the machine hours prediction $260K = 130K + 5*$26K, which has the higher R^2.

However, this is not quite correct. The first fit does have some information value and the real best estimate is a weighted average of the two predictions.