Question

Kathy Chen​, owner of Flower Hour​, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery​ fee, Chen wants to set the delivery fee based on the distance driven to deliver the flowers. Chen wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven​ months:

Month	Miles Driven	Van Operating Costs
January. . . . . . . . . . . . . . . . . . . . . .	16,400	$5,480
February. . . . . . . . . . . . . . . . . . . . . .	17,500	$5,400
March. . . . . . . . . . . . . . . . . . . . . .	15,000	$4,950
April. . . . . . . . . . . . . . . . . . . . . .	16,100	$5,270
May. . . . . . . . . . . . . . . . . . . . . .	17,300	$5,740
June. . . . . . . . . . . . . . . . . . . . . .	15,600	$5,440
July. . . . . . . . . . . . . . . . . . . . . .	14,500	$4,680

Use Microsoft Excel to run a regression​ analysis, then do the​ following:

1.	Determine the​ company's cost equation​ (use the output from the Excel​ regression).
2.	Determine the​ R-square (use the output from the Excel​ regression). What does Flower HourFlower Hour​'s ​R-square indicate?
3.	Predict van operating costs at a volume of 16 comma 00016,000 miles assuming the company would use the cost equation from the Excel regression regardless of its​ R-square. Should the company rely on this cost​ estimate? Why or why​ not?

Answer 1