Chapter 6-Problem 3 DBC, a manufacturer of high end racing bicycles, is interested in determining the cost associated with the warranty costs on their bicycles. Three cost drivers are believed to be important in explaining the cost of this activity: the speed (ft/min.) of the manufacturing line, the number of defective products produced and the hours of inspection. To determine if this hypothesis is valid, the company's analysts examined the past 3 years of warranty cost data and ran a multiple regression analysis. The following output is obtained: Parameter Intercept Line Speed Number of defects Estimate 3,300 25 50 Pret 0001 t-stat 80.00 5.31 2.58 0033 0050 Inspection hours R2 0.88 0250 15 -1.96 Observations 250 Questions Determine the estimated cost model for DBC's warranty repair cost. If DBC expects to run their line at 30 ft/ min. and to have 65 defects per week and to spend 40 hours on inspection, what is their anticipated warranty repair cost? Is Line Speed positively or negatively correlated with warranty costs? What about Number of Defects? Inspection hours? What does R indicate in this equation? Overall, what is your evaluation of the cost model at predicting warranty repair activity? 2 3. 4