Question

Least-Squares Regression [LO5-11] [The following information applies to the questions displayed below.] Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of its car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled:
Month Rental Returns Car Wash Costs
January 2,400 $ 11,000
February 2,500 $ 13,100
March 2,700 $ 11,800
April 3,000 $ 14,300
May 3,600 $ 16,200
June 5,000 $ 23,300
July 5,500 $ 22,200
August 5,500 $ 22,200
September 4,700 $ 22,800
October 4,000 $ 21,100
November 2,200 $ 10,700
December 2,800 $ 14,200
Using least-squares regression, estimate the variable cost per rental return and the monthly fixed cost incurred to wash cars. (Round Fixed cost to the nearest whole dollar amount and the Variable cost per unit to 2 decimal places.)

Answer 1

Answer:

I used an excel spreadsheet to calculate this:

the least squares regression line:

y = a + bx

y = $2,752 + 3.87x

where y = total cash wash costs and x = rental returns

fixed costs = $2,752 per month

variable cost = $3.87 per car washed            

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