Topic: Chapter 14 (Regression) Case Study: Maintenance Contract Business decisio

Question

Topic: Chapter 14 (Regression)
Case Study: Maintenance Contract
Business decision making is something that management must to do on a daily basis. Jensen Tire & Auto is a family owned auto service company. In recent months, business has been slow so in an effort to reduce cost, the company is deciding on whether to purchase a maintenance contract for its new computer wheel alignment and balancing machine, which costs $5,000 per year, instead of maintaining their own machine. The owner feels that maintenance expense should be related to usage so he collected a random sample of 30 weeks of weekly usage (hours) and annual maintenance expense (in hundreds of dollars). For each week, the following variables were recorded:
Weekly usage (hours)
Annual Maintenance Expense ($100s)
However, he is unsure how to do the analysis. Knowing you are about to finish the course in business analytics, your manager recommended you to the owner and you are now appointed to do the analysis for the above sample information using the appropriate statistical method to determine whether Jensen Tire & Auto should purchase the maintenance contract.
Your report should have the following qualities:
• Your report must be in a genuine report format with problem definition, analysis and final conclusion.
• All important analysis steps need to be followed to arrive at the model to be used for prediction. Attach the details of your analysis at the end of your report. Very simplistic analysis with insufficient details will be assigned a near zero credit.
• Just running Excel does not guarantee any credit.
• Your final conclusion should use both the 95% confidence and prediction intervals. Improper use of these and corresponding wrong/sloppy interpretation is highly penalized.
• Use Data Analysis for Regression and then either Data Analysis Plus or the Regression Template provided on the course website for the intervals.

Weekly Usage (hours) Annual Maintenance Expense 13 17.0 10 22.0 20 30.0 28 37.0 32 47.0 17 30.5 24 32.5 31 39.0 40 51.5 38 40.0 25 19.5 24 49.0 20 31.7 22 41.3 12 40.5 11 37.4 25 14.4 19 35.0 25 34.1 21 35.2 22 26.8 29 24.4 17 29.7 12 35.2 10 20.1 28 37.3 10 33.2 16 31.1 30 41.6 13 29.9

Explanation / Answer

Problem definition :

The problem is to identify if its worth to put $ 5000 per year, or do own repairs according to the data geven

mean = 33.13*100 = 3313$

we comapare results of 5000 vs 3313 at 0.05 level

Z = (x-u)/s/sqrt(n)

= (50-33.13)*sqrt(30)/ 0.0438

= 10.21 >>> Z critcal value at 95% confidence interval i.e. 1.96

hence choosong the option for own maintenance is the best option

Now conducting regression ananlysis

COnclusion : We prefer using our own maintenace cost rule

Also the regression between hours and maintenace cost have a positive relation biut strength is moderate

Weekly Usage (hours) Annual Maintenance Expense 13 17 10 22 20 30 28 37 32 47 17 30.5 24 32.5 31 39 40 51.5 38 40 25 19.5 24 49 20 31.7 22 41.3 12 40.5 11 37.4 25 14.4 19 35 25 34.1 21 35.2 22 26.8 29 24.4 17 29.7 12 35.2 10 20.1 28 37.3 10 33.2 16 31.1 30 41.6 13 29.9 mean=33.13 stdev=9.0438

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.