Frank Fletch manages a plant that produces a variety of ball bearings and cylindrical roller bearings. Seeking to better understand his cost structure, Frank collected the following data regarding the number of machine hours worked and the number of maintenance hours for the past nine quarters (2.25 years) of operations:

Required:
a. Using Excel, estimate the following regression equation: Maintenance hours = FC + (UVC × machine hours).
b. Why do you believe that the equation you developed in part (a) does not predict the number of maintenance hours worked in a quarter? You know that Frank usually schedules preventive maintenance during €œoff€ times when the machines are not being fully utilized.
c. Modify the equation in part (a) so that maintenance hours are regressed on machine hours from the prior quarter. That is, estimate the following regression equation:
Maintenance hours = FC + (UVC × machinehoursquarter-1).

Transcribed Image Text:

Qua Machine Hours Q1, 2007 02, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Q2, 2008 3, 2008 Q1, 2008 Q1, 2009 Maintenance Hours 810 655 886 971 10,000 12,200 13,400 15,300 12,000 13,500 15,000 18,000 12,250 1,041 700 814 966 1,203