Question

Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of it car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled:

Month Rental Returns Car Wash Costs
January 2,300 $ 10,200
February 2,500 $ 12,700
March 2,700 $ 11,000
April 2,900 $ 13,100
May 3,600 $ 15,400
June 4,900 $ 21,700
July 5,400 $ 21,400
August 5,300 $ 20,200
September 4,600 $ 22,000
October 3,800 $ 18,700
November 2,100 $ 9,900
December 2,500 $ 11,400
2. Using least-squares regression, estimate the variable cost per rental return and the monthly fixed cost incurred to wash cars. What is the R2 rounded to the nearest whole percentage? (Round Fixed cost to the nearest whole dollar amount and the Variable cost per unit to 2 decimal places.)

Answer 1

Variable cost $3.79 ; fixed cost = $2185.47

Explanation:

Given the data :

Rental return(x) :

2300

2500

2700

2900

3600

4900

5400

5300

4600

3800

2100

2500

Car wash cost :

10200

12700

11000

13100

15400

21700

21400

20200

22000

18700

9900

11400

Using the online regression calculator :

The obtained regression equation is :

ŷ = 3.79X + 2185.47

Comparing the obtained result with the general form of the equation:

y = mx + c

Where m = gradient or slope whose value gives the variation in cost per rental return (x)

c = intercept, which is constant or fixed, it is the value where the regression line crosses the y axis, hence, it corresponds to the fixed cost.

Hence,

The variable cost per rental return(m)

mx = 3.79x

m = $3.79

The fixed cost :

c = $2185.47