Summerland Freightways is a leader in transporting agricultural products in the western provinces of Canada. Reese Brown, a financial analyst at Summerland Freightways, is studying the behaviour of transportation costs for budgeting purposes. Transportation costs at Summerland are of two types: (a) operating costs (such as labour and fuel) and (b) maintenance costs (primarily overhaul of vehicles). Brown gathers monthly data on each type of cost, as well as the total freight miles traveled by Summerland vehicles in each month. The data collected are shown below (all in thousands): - X Required Cost data 1. Conduct a regression using the monthly data of operating costs on freight miles to determine the regression equation. You should obtain the following result: Regression: Operating costs = a + (bx Number of freight miles) Operating costs Variable Coefficient Standard Error t-value Constant $ 446.50 $ 116.52 3.83 Independent variable: No. of freight miles $ 0.26 $ 0.03 7.63 2 = 0.85: Durbin-Watson statistic = 2.22 2. Plot the data and regression line for the estimation in requirement 1. Evaluate the regression using the criteria of economic plausibility, goodness of fit, and slope of the regression line. 3. Brown expects Summerland to generate, on average, 3,800 thousand freight miles each month next year. How much in operating costs should Brown budget for next year? 4. Identify the variables, other than freight miles, that Brown might expect to be important cost drivers for Summerland's operating costs. 5. Brown next conducts a regression using the monthly data of maintenance costs on freight miles. Conduct a regression using the monthly data of maintenance costs on freight miles to determine the regression equation. Regression: Maintenance costs = a + (bx Number of freight miles) Month January February March April May wire June July August September October November December $953 1019 1230 1363 1508 1564 1581 1966 1185 1303 977 756 Maintenance Costs $980 778 675 708 594 429 357 424 577 792 767 1,023 Freight Miles 1,700 2,670 2,700 4.240 4.700 4,425 4.395 4.970 3,010 2,580 2,270 1,510 Print Done Variable Coefficient Standard Error t-value Constant $ 1,167.53 $ 93.71 12.46 Independent variable: No. of freight miles $ -0.15 $ 0.03 -5.58 2 = 0.76: Durbin-Watson statistic = 1.89 6. Provide reasoned explanations for the observed sign on the cost driver variable in the maintenance cost regression. What alternative data or alternative regression specifications could be used to better capture the relationship between freight miles and maintenance costs? Print Done Summerland Freightways is a leader in transporting agricultural products in the western provinces of Canada. Reese Brown, a financial analyst at Summerland Freightways, is studying the behaviour of transportation costs for budgeting purposes. Transportation costs at Summerland are of two types: (a) operating costs (such as labour and fuel) and (b) maintenance costs (primarily overhaul of vehicles). Brown gathers monthly data on each type of cost, as well as the total freight miles traveled by Summerland vehicles in each month. The data collected are shown below (all in thousands): - X Required Cost data 1. Conduct a regression using the monthly data of operating costs on freight miles to determine the regression equation. You should obtain the following result: Regression: Operating costs = a + (bx Number of freight miles) Operating costs Variable Coefficient Standard Error t-value Constant $ 446.50 $ 116.52 3.83 Independent variable: No. of freight miles $ 0.26 $ 0.03 7.63 2 = 0.85: Durbin-Watson statistic = 2.22 2. Plot the data and regression line for the estimation in requirement 1. Evaluate the regression using the criteria of economic plausibility, goodness of fit, and slope of the regression line. 3. Brown expects Summerland to generate, on average, 3,800 thousand freight miles each month next year. How much in operating costs should Brown budget for next year? 4. Identify the variables, other than freight miles, that Brown might expect to be important cost drivers for Summerland's operating costs. 5. Brown next conducts a regression using the monthly data of maintenance costs on freight miles. Conduct a regression using the monthly data of maintenance costs on freight miles to determine the regression equation. Regression: Maintenance costs = a + (bx Number of freight miles) Month January February March April May wire June July August September October November December $953 1019 1230 1363 1508 1564 1581 1966 1185 1303 977 756 Maintenance Costs $980 778 675 708 594 429 357 424 577 792 767 1,023 Freight Miles 1,700 2,670 2,700 4.240 4.700 4,425 4.395 4.970 3,010 2,580 2,270 1,510 Print Done Variable Coefficient Standard Error t-value Constant $ 1,167.53 $ 93.71 12.46 Independent variable: No. of freight miles $ -0.15 $ 0.03 -5.58 2 = 0.76: Durbin-Watson statistic = 1.89 6. Provide reasoned explanations for the observed sign on the cost driver variable in the maintenance cost regression. What alternative data or alternative regression specifications could be used to better capture the relationship between freight miles and maintenance costs? Print Done