Multiple Regression Analysis for a Special Decision (Requires Computer Spreadsheet) For billing purposes, assume Phoenix...
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Multiple Regression Analysis for a Special Decision (Requires Computer Spreadsheet) For billing purposes, assume Phoenix Family Medical Clinic classifies its services into one of four major procedures, X1 through X4. A local business has proposed that Phoenix provide health services to its employees and their families at the following set rates per procedure:
X1
$100
X2
200
X3
60
X4
300
Because these rates are significantly below the current rates charged for these services, management has asked for detailed cost information on each procedure. The following information is available for the most recent 12 months.
Number of Procedures
Month
Total Cost
X1
X2
X3
X4
1
$17,250
30
25
155
19
2
18,750
38
30
135
23
3
20,250
50
20
105
38
4
14,250
20
25
90
25
5
15,000
68
15
120
20
6
20,250
90
19
158
14
7
19,125
20
30
143
28
8
16,125
16
30
132
20
9
19,500
60
21
93
35
10
16,500
20
22
75
35
11
17,100
20
18
113
33
12
19,875
72
15
150
30
Required a. Use multiple regression analysis to determine the unit cost of each procedure. How much variation in monthly cost is explained by your cost-estimating equation?
Round each answer to two decimal places.
Y
=
Answer
+
Answer
X1
+
Answer
X2
+
Answer
X3
+
Answer
X4
b. Evaluate the rates proposed by the local business. Assuming Phoenix has excess capacity and no employees of the local business currently patronize the clinic, what are your recommendations regarding the proposal?
Use negative signs with answers only to indicate a loss. Otherwise do not use negative signs with your answers.
Comparison of Proposed Rates and Estimated Variable Costs
Procedure
X1
X2
X3
X4
Proposed rate
Answer
Answer
Answer
Answer
Estimated cost
Answer
Answer
Answer
Answer
Profit (loss)
Answer
Answer
Answer
Answer
c. Evaluate the rates proposed by the local business. Assuming Phoenix is operating at capacity and would have to turn current customers away if it agrees to provide health services to the local business, what are your recommendations regarding the proposal?
Phoenix should accept the proposal.
Phoenix should reject the proposal.
Answer & Explanation
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