Question

EZ Rental Car offers rental cars in an off-airport location near a major tourist destination in Florida Management would like to better understand the behaviour of the company's costs. One of those costs is the cost of washing cars. 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 costs of operating the car wash should be related to the number of rental returns. Accordingly, the following data have been compiled:
Month Rental Returns Car Wash Costs
January 2,470 $11,713
February 2,533 $13,491
March 2,801 $12,505
April 3,114 $15,349
May 3,700 $16,934
June 5,181 $24,655
July 5,592 $22,870
August 5,668 $23,930
September 4,788 $23,460
October 4,522 $23,183
November 2,266 $11,430
December 3,055 $16,681
Required:
Using least-squares regression, estimate the fixed cost and variable cost elements of monthly car wash cost.
Fixed cost
Variable cost per unit

Answer 1

Answer:

I used an excel spreadsheet to calculate this:

the least squares regression line:

y = a + bx

y = $2,937 + 3.96x

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

fixed costs = $2,937 per month

variable cost = $3.96 per car washed            

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