Question

Sherri’s Tan-O-Rama is a local tanning salon. The following information reflects its number of appointments and total costs for the first half of the year

Month January February March April May June Number of Appointments 250 300 500 225 150 175 Total Cost $5,000 6,000 6,200 5,300 5,450 5,230

1) Use least-squares regression to estimate cost behavior based on this data.

a. The number of appointments explains about _________ of the Total Cost. Fill in the blank.

b. What is your formula for predicting Total Cost?

c. What would Total Cost be if the company had 400 appointments in July?

2). Which estimate of Total Cost in July would you rely on if you were a manager? Why that estimate and not the other two estimates?

Answer 1

1) least - Squaves regression to estimate cost behavion a) The number of appointments explains about variable portion of total cost. 6) Formula for predicting total cost is Ч y = atba who where (a) Total Fixed Cost = Ey-bza n (b) unit variable cost = ngxy - (21) Czy) 2 nEx² - (Ex? where, in is no. of pair's of units Cappointments) Ey is the sum of total cost ex is the sum of no. of appointments exy is the sum of x qy Ex2 is the sum of squares of a.

had 400 appoint- c) Total cost, if the company raments in July : No. of appoint Total -ments ca Cost Cy) Month x2 ay Jan 250 $ 5,000 Feb 300 6,000 62,500 12,50,000 90,000 18,00, cool 2,50,000 31,00,000 Mar 500 6,200 Apr To 225 $ 300 50,625 11,92,500 May ISO 5,450 June 175 5,230 22,500 18 17,500 30,625 9,15250 5,06,250 180,75,250 n = 6 1600 33,180 6 (80,75,250) -(1600) (3380) 6 (5,06,250) - (1600) 484 SISOD 5,30,88,000 3037500 – 25,60,000 - 46,36,500 47, 7500 = -9.71 33,180 - 69.91) (1600) 8,119 and To 6

The Cost- volume formule now becomes: = atba yo Я y 8,119 - 9.712 total cost is 400 appointment in july , the estimated 8,119 - 9.91(400) = $4,235 2) Total Cost of $4,255 estimation was realiable for me as a manager Be cause the the least square regression method is a statistical procedure to find the best fit for a points by minimizing the sum of residuals of points from the plotted Curre. set of data the