Comparison of Regression Equations, 3-12 Confidence Interval L01, L03 104, 105 Oriental Bank is attempting to determine the cost behavior of its small business lending operations. One of the major activities is the application activity. Two possible activity drivers have been identified: application hours (number of hours to complete the appli- cation) and number of applications. The bank controller has accumulated the following data for the setup activity: Month February March April May June July August September October Application Costs $ 7,700 7,650 10,052 9,400 9,584 8,480 8,550 9,735 10,500 Application Hours 2,000 2,100 3,000 2,700 3,000 2,500 2,400 2,900 3,000 Number of Applications 70 50 50 60 20 40 60 50 90 Required: 1. Estimate a regression equation with application hours as the activity driver and the only independent variable. If the bank forecasts 2,800 application hours for the next month, what will be the budgeted application cost? 2. Estimate a regression equation with number of applications as the activity driver and the only independent variable. If the bank forecasts 90 applications for the next month, what will be the budgeted application cost? 3. Which of the two regression equations do you think does a better job of predicting application cost? Explain. 4. Run a multiple regression to determine the cost equation using both activity drivers. What is the budgeted application cost for 2,800 application hours and 90 applications? 5. Prepare a 99 percent confidence interval for this estimate of total application cost.