Maintenance costs covering 15 months of operation for Central Industries are available at the Wiley Web site at www.wiley.com/college/eldenburg. Maintenance consists of regularly scheduled tasks to keep machinery operating efficiently and occasional repairs. The regular tasks include inspecting, cleaning, oiling, and repairing worn parts. The potential cost drivers are units of output, direct labor hours, and number of machine setups. The data are presented in thousands.

REQUIRED

A. For each potential cost driver, prepare a scatter plot versus maintenance cost and then perform a simple regression.

B. From analyzing the scatter plots, which cost driver appears to be the best? Explain.

C. Which cost driver appears to have the best explanatory ability for maintenance costs? Explain.

D. In the regression with the highest adjusted R-square, examine the t-statistics and p-values to determine whether both the intercept and slope coefficients are significant. Does maintenance cost appear to be primarily fixed, primarily variable, or mixed? Write out the cost function for this cost driver.

E. Explain why the future cost function might be different from a cost function based on past cost information.