Jensen Tire & Auto is in the process of deciding whether to purchase a maintenance contract for its new computer wheel alignment and balancing machine. Managers feel that maintenance expense should be related to usage, and they collected the following information on weekly usage (hours) and annual maintenance expense (in hundreds of dollars).
Weekly Usage Annual
(hours) 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
a. Develop the estimated regression equation that relates annual maintenance expense to weekly usage.
b. Test the significance of the relationship in part (a) at a .05 level of significance.
c. Jensen expects to use the new machine 30 hours per week. Develop a 95% prediction interval for the company’s annual maintenance expense.
d. If the maintenance contract costs $3,000 per year, would you recommend purchasing it? Why or why not?