Materhorn, a manufacturer of VCRs, is interested in determining the cost of its warranty repair activity. Two cost drivers have been identified that are believed to be important in explaining the cost of this activity: the number of defective products produced and the hours of inspection. To see if the belief is valid, the company’s cost analysts have gathered 100 weeks of data and run a multiple regression analysis. The following printout is obtained:

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Parameter Estimate t for H. Parameter=0 Prot Std Error of Parameter Intercept 2,000 80.00 0.0001 25.000 No. of defects 60 2.58 0.0050 23.256 Inspec. hrs. -10 -1.96 0.0250 5.103 0.88 S. 150 R2 = Observations 100 Required: 1. Write out the cost formula for Materhorn's warranty repair activity. 2. If Materhorn expects to have 100 defects per week and to spend 150 hours on inspection, what are the anticipated warranty repair costs? 3. Is the number of defects positively or negatively correlated with warranty re- pair costs? Are inspection hours positively or negatively correlated with war- ranty repair costs? 4. What does R mean in this equation? Overall, what is your evaluation of the cost formula that was developed for the warranty repair activity?