Question

In: Operations Management

Month Machine Hours (hrs.) Maintenance Costs ($) 1 1,330 102,694 2 1,400 103,694 3 1,500 108,694...

Month

Machine Hours (hrs.)

Maintenance Costs ($)

1

1,330

102,694

2

1,400

103,694

3

1,500

108,694

4

1,470

108,694

5

1,620

116,694

6

1,690

115,694

7

1,490

107,694

8

1,310

102,694

9

1,450

106,694

10

1,580

113,694

11

1,300

100,694

12

1,600

113,694

13

1,650

114,694

14

1,440

109,694

15

1,340

102,694

16

1,670

114,694

17

1,480

106,694

18

1,360

103,694

19

1,340

103,694

20

1,540

112,694



Assume that the following relationship holds:

Maintenance Costs = (v * Machine Hours) + f

REQUIRED

Estimate the values of v and f and the cost equation, using,

1. The Linear Regression method.

Note, to use the linear regression method, you MUST use the Microsoft Excel program.

Make sure to report

1. The values of v and f;

2. A scatter plot of the data points, and

3. The adjusted R-square; explain what the adjusted R-square means.

4. The cost equation in the form of Y = vx + f, substituting the values for v and f from the regression output.

YOUR SUBMISSION MUST BE IN EXCEL.

Solutions

Expert Solution

Adjusted R-square is a modified version of r2, adjusted for the number of predictors in the regression model. It compares the explanatory/predictor power of regression models having different number of predictors.

Adjusted r-squared value,

where, n is the number of data points and k is the number of independent variables,

In this case, n = 20, and k = 1 (Machine hours is the independent variable)

Adjusted r-squared value = 1 - (1-0.9342)*(20-1)/(20-1-1) = 0.9305


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