Lecture-Notes-Part-2-Regression-LP

Assume the following table represents a cost analysis

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Assume the following table represents a cost analysis for the past 8 months. Before running the regression we need to decide what is causing “Y”. There are four possible drivers. Months Y X 1 Batches of 30 X 2 Rent per quarter X 3 Straight-line Amortization Every other month X 4 Units 1 \$ 23 2 \$ 36 3 \$ 57 4 \$ 79 5 \$ 91 6 \$ 119 7 \$ 150 8 \$ 103 How would we determine which are the most appropriate drivers?

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Consider maintenance costs in a production facility over the past six periods. Power disruption in period 2 Expansion in period 4 1 \$ 2 \$ 3 \$ 4 \$ 5 \$ 6 \$ Results: Coefficients \$53,000 \$410,000 Error term \$ 2,300 \$ 22,000 How would we use coefficients to predict maintenance costs for period #7. How can we use the error term and coefficient for planning another expansion in period #9? Cappadocia Ltd. Produced & Sold
Quarterly Units 1 500,000 500 2 535,000 550 3 573,500 605 4 1,065,850 666 5 662,435 732 6 713,679 805 7 770,046 886 8 1,282,051 974 9 900,256 1,072 10 937,769 1,125 11 977,157 1,182 12 1,522,515 1,241 13 1,061,941 1,303 14 1,107,538 1,368 15 1,155,415 1,436 16 1,640,686 1,508 17 ??

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99 Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC (18) (20) (18) (20) Cappadocia Ltd. Production capacity is 2,000 units per quarter Overhead cost details: At the end of each year the firm pays for its annual building leases and also does a year- end journal entry for straight- line amortization. Amortization is roughly 50% of the annual building lease. a) Estimate the units sold in period 17. b) With no adjustment to the data, estimate the unit cost using hi lo method c) With no adjustment to the data, estimate the unit cost by using the regression tool d) Adjust the data, use dummy variables and build a cost model. e) The CEO would like a cost estimate for period 18 and period 20 What might the CFO want to use as a cost model for?
99 Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC

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100 Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC If you are buying a used car what do you think are the “drivers” or the items that influence the market value of the car (assume same model and features). How could you use regression to augment your analysis, Diesel incorporated is trying to figure out how Month Monthly Cost of Maintenance Cumulative Mileage Age of Vehicle In Years D = Diesel G = Gasoline Power 1 1,220 32.2 New D 2 1,550 34.8 1 D 3 1,350 26.7 1 D 4 1,350 24.8 2 D 5 1,450 28.2 2 D 6 1,480 27.5 2 D 7 1,300 30.6 New G 8 1,310 29.4 New G 9 1,350 31.4 New G 10 1,360 28.3 1 G 11 1,400 29.0 1 G 12 1,310 26.2 1 G 13 1,500 27.1 2 G 14 1,460 25.8 2 G
101 Prepared by J. Kroeker, 2016 © Sauder School of Business, UBC Hallar Cost modeling: Regression Hallar is a printing company which produces books for both the university market and for the seasonal gift market, such as Christmas. Universities typically order once per year in spring for delivery in August. This means that Hallar produces academic books from May to August, with the production for the balance of the year being predominantly geared to the gift market. Through use of JIT Hallar maintains a low level of inventory and ships to its wholesale customers regularly. The average shipment size is 2,000 books per shipment and, given that distances are similar, Hallar has negotiated a fixed price per shipment. The company does

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• Winter '14
• Sauder School of Business, J. Kroeker, Sauder School

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