Kathy Chen?, owner of Flower Hour?, operates a local chain offloral shops. Each shop has its own delivery van. Instead ofcharging a flat delivery? fee, Chen wants to set the delivery feebased on the distance driven to deliver the flowers. Chen wants toseparate the fixed and variable portions of her van operating costsso that she has a better idea how delivery distance affects thesecosts. 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 theExcel? 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 theExcel regression regardless of its? R-square. Should the companyrely on this cost? estimate? Why or why? not? |
