Microtel, a manufacturer of chips, is interested in determining the cost of its product during...
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Microtel, a manufacturer of chips, is interested in determining the cost of its product during the warranty period. Two cost drivers have been identified that are believed to be important in explaining the cost of this activity: the number of defective products produced and the hours of inspection. To see if the belief is valid, the company's cost analysts gather 100 weeks of data and run a multiple regression analysis. The following output is obtained: Parameter Estimate t-stat Pr>t Intercept 2,000 80.00 .0001 Number of defects 60 2.58 .0050 Inspection hours -10 -1.96 .0250 R 2 = 0.88 Observations 100
Questions: 1. Determine the estimated cost model for Microtel's warranty repair cost.
2. If Microtel expects to have 100 defects per week and to spend 150 hours on inspection, what is their anticipated warranty repair cost?
3. Are number of defects positively or negatively correlated with warranty repair costs? Is inspection hours positively or negatively correlated with warranty repair costs?
4. What does R2 indicate in this equation? Overall, what is your evaluation of the cost model that was developed for the warranty repair activity?
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