EXERCISE 5-12 (30 MINUTES)

1. The least-squares regression method:

Month Number of Scans (X) Utilities Cost (Y)

January 60 $2,200 February 70 $2,600 March 90 $2,900 April 120 $3,300 May 100 $3,000 June 130 $3,600 July 150 $4,000 August 140 $3,600 September 110 $3,100 October 80 $2,500 Statistical software or a spreadsheet application such as Excel or can be used to compute the slope and intercept of the least-squares regression line for the above data. The results are: Intercept (fixed cost) ... $1,171 Slope (variable cost per unit) ... $18.18 R

²

... 0.97 Therefore, the variable cost of power per scan is $18.18 and the fixed cost of power is $1,171 per month and the cost formula is: Y = $1,171 + $18.18X. Note that the R

²

is 0.97, which means that 97% of the variation in utili-ties cost is explained by the number of scans. This is a very high R

²

and indicates a very good fit.