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Unformatted text preview: hours and 1200 units inspected, Inspect ion costs using units inspected = $1,004 + ($2.02 × 1200) = $3,428 Inspect ion costs using inspect ion labor­hours = $626 + ($19.51 × 150) = $3,552.50 If Neela uses inspect ion­labor­hours she will estimate inspect ion costs to be $3,552.50, $124.50 ($3,552.50 ─$3,428) higher than if she had used number of units inspected. If actual costs equaled, say, $3,500, Neela would conclude that Newroute has performed efficient ly in it s inspect ion activit y because actual inspection costs would be lower than budgeted amounts. In fact, based on the more accurate cost funct ion, actual costs of $3,500 exceeded the budgeted amount of $3,428. Neela should find ways to improve inspect ion efficiency rather than mistakenly conclude that the inspect ion act ivit y has been performing well. 10­25 10­35 (15­20min.) Interpreting regression results, matching time periods. 1. The regressio n o f 2 years of Brickman’s mo nthly data yields the fo llowing est imated relat ionships: Maintenance costs = $21,000 – ($2.20 per machine­hour ´ Number of machine­hours); Sales revenue = $310,000 – ($1.80 ´ advertising expenditure) Sascha Green is comment ing about some surprising and economically­implausible regressio n results. In the first regression, the coefficient on machine­hours has a negat ive sign. This implies that the greater the number of machine­hours (i.e., the longer the machines are run), the smaller will be the maintenance costs; specifically, it suggests that each extra machine hour reduces maintenance costs by $2.20. Similarly, the second regression, with its negat ive coefficient on advert ising expenditure, implies that each extra dollar spent on advert ising will actually reduce sales revenue by $1.80! Clearly, these est imated relat ionships are not economically plausible. 2. The problem statement tells us that Brickman has four peak sales periods, each last ing two months and it schedules maintenance in the inter...
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