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Exercise 5A-2 Least-Squares Regression [LO5-11]

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Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of it car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled:

Month	Rental Returns		Car Wash Costs
January	2,400		$	11,200
February	2,500		$	13,200
March	2,800		$	12,000
April	3,000		$	14,600
May	3,700		$	16,400
June	5,100		$	23,700
July	5,500		$	22,400
August	5,500		$	22,700
September	4,700		$	23,000
October	4,100		$	21,700
November	2,200		$	10,900
December	2,900		$	14,900

Exercise 5A-2 Part 2

2. Using least-squares regression, estimate the variable cost per rental return and the monthly fixed cost incurred to wash cars.

Answer 1

Least square regression: y = 3.9214x + 2715.8

Run a regression statistical analysis

Summary output:

Significance F is nothing but P-value

P-value is 0.000001242

P-value is less than 0.05

If the p-value is less than 0.05, we reject the null hypothesis that there's no difference between the means and conclude that a significant difference does exist.