1. Finley Heaters Inc. is a mid sized manufacturer of residential water heaters.
ID: 3380073 • Letter: 1
Question
1. Finley Heaters Inc. is a mid sized manufacturer of residential water heaters. Sales have grown during the last several years, and the company’s production capacity needs to be increased. The company’s management wonders if national housing starts might be a good indicator of the company’s sales.
Year
National Housing Starts (millions)
Finley Heaters’ Annual Sales (millions of dollars)
1
6.2
57
2
5.1
59
3
6.5
65
4
7.9
78
5
6.3
72
6
7.4
80
7
7.0
86
Using POM develop a simple linear regression analysis between Finley Heaters’ sales and national housing starts. Forecast Finley Heaters’ sales for the next two years. The National Home Builders Association estimates that national housing starts will be 7.1 million and 8.0 million for the next two years.
What percentage of variation in Finley Heaters’ sales is explained by national housing starts?
Would you recommend that Finley Heaters management use forecast from Part a to plan facility expansion? Why or why not? What could be done to improve the forecast?
Year
National Housing Starts (millions)
Finley Heaters’ Annual Sales (millions of dollars)
1
6.2
57
2
5.1
59
3
6.5
65
4
7.9
78
5
6.3
72
6
7.4
80
7
7.0
86
Explanation / Answer
Sol)
The Regression equation is y=a+bx
where x is National housing starts and y is finley heaters
From Excel
The fitted regression eqation is y=9.68 + 9.25 (National Housing Starts)
Now when x= 7.1 million then
y= 9.68 + 9.25(7.1)
y= 75.35
Now when x= 8 million then
y= 9.68 + 9.25(8)
y=83.68
Forecasted Finley Heaters’ sales for the next two years are 75.35 and 83.68
B)
Since R2 value= 0.5838
Hence 58.38% of variation in Finley Heaters’ sales is explained by national housing starts
SUMMARY OUTPUT Regression Statistics Multiple R 0.764099 R Square 0.583848 Adjusted R Square 0.500617 Standard Error 7.805428 Observations 7 ANOVA df SS MS F Significance F Regression 1 427.3764 427.3764 7.014829 0.045506 Residual 5 304.6236 60.92471 Total 6 732 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 9.681922 23.33876 0.414843 0.695456 -50.3123 69.67611 -50.3123 69.67611 National Housing Starts (millions) 9.250572 3.49269 2.648552 0.045506 0.272326 18.22882 0.272326 18.22882Related Questions
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