Question

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		$	10,900
February	2,500		$	13,100
March	2,700		$	11,700
April	3,000		$	14,100
May	3,600		$	16,100
June	5,000		$	23,100
July	5,500		$	22,100
August	5,500		$	21,900
September	4,700		$	22,700
October	4,000		$	20,800
November	2,200		$	10,600
December	2,800		$	13,900

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. (Round Fixed cost to the nearest whole dollar amount and the Variable cost per unit to 2 decimal places.)

Answer 1

We solve this problem by Excel. We take car wash cost as the dependent variable and rental return as the independent variable. We put the data in Excel and do the following: Data > Data analysis > Regression. We get the output as follows:

So we found that the variable cost per rental return is 3.84 and the fixed cost incurred to wash cars is 2690 dollars.