Problem 06-46

1. Scatter diagram:
Madison County Airport

Airport
Month Flights Costs
January * *
February * *
March * *
April * *
May * *
June * *
July * *
August * *
September * *
October * *
November * *
December * *

2. Least-squares regression:
(a) Tabulation of data:
Dependent Independent
Variable Variable
(cost in (flights in
thousands) hundreds)
Month Y X
January * *
February * *
March * *
April * *
May * *
June * *
July * *
August * *
September * *
October * *
November * *
December * *
Total * *

(b) Calculation of parameters:

 (∑Y) (∑X2) - (∑X) (∑XY)
a=
n (∑X2) - (∑X) (∑X)

a= *

n (∑XY) - (∑X) (∑Y)

b=
n (∑X2) - (∑X) (∑X)

b= *

(c) Fixed- and variable-cost components:

Monthly fixed cost = *
Variable cost = * per hundred flights

3. Cost equation
Total monthly airport cost = * +

where X denotes the number of flights in hundreds.

4. Cost prediction for 1,600 flights

Airport cost for the month = *

5. Calculation and interpretation of R2

Formula for calculation

S(Y-Y1)2
R2 =1-
S(Y-Ÿ)2

Where Y denotes the observed value of the dependent

variable (cost) at a particular activity level
Y1 denotes the predicted value of the dependent
variable (cost) based on the regression line,
at a particular activity level
Ÿ denotes the mean (average) observation of the
dependent variable (cost)

Tabulation of data: Predicted Cost

(in thousands)

Regression
Month Y X
January 20 11
February 17 8
March 19 14
April 18 9
May 19 10
 June 20 12
July 18 11
August 24 14
September 19 10
October 21 12
November 17 9
December 21 15
Total 233 135
Rounded
†

Calculation of R2: *

Briefly interpret R2:

 Student Name:
Class:

Airport Costs

Madison County Airport

12
10
8
6
4
2
0
0 250
Flights

X2 XY
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
* *
 * X

he dependent

he dependent

ervation of the

Predicted Cost
(in thousands)
Based on
Regression
Line Y' [(Y-Y')2]† [(Y-Ÿ)2]†
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
Problem 06-46

1. Scatter diagram:
Madison County Airport

Airport
Month Flights Costs
January 1,100 20,000
February 800 17,000
March 1,400 19,000
April 900 18,000
May 1,000 19,000
June 1,200 20,000
July 1,100 18,000
August 1,400 24,000
September 1,000 19,000
October 1,200 21,000
November 900 17,000
December 1,500 21,000

2. Least-squares regression:
(a) Tabulation of data:
Dependent Independent
Variable Variable
(cost in (flights in
thousands) hundreds)
Month Y X
January 20 11
February 17 8
March 19 14
April 18 9
May 19 10
June 20 12
July 18 11
August 24 14
September 19 10
October 21 12
November 17 9
December 21 15
Total 233 135

(b) Calculation of parameters:

(∑Y) (∑X2) - (∑X) (∑XY)
a=
n (∑X2) - (∑X) (∑X)
 a= 11.796

n (∑XY) - (∑X) (∑Y)

b=
n (∑X2) - (∑X) (∑X)

b= 0.677

(c) Fixed- and variable-cost components:

Monthly fixed cost = $ 11,796
Variable cost = $ 677 per hundred flights

3. Cost equation
Total monthly airport cost = $ 11,796 + $ 677 X

where X denotes the number of flights in hundreds.

4. Cost prediction for 1,600 flights

Airport cost for the month = $ 22,628

5. Calculation and interpretation of R2

Formula for calculation

S(Y-Y1)2
R2 =1-
S(Y-Ÿ)2

Where Y denotes the observed value of the dependent

variable (cost) at a particular activity level
Y denotes the predicted value of the dependent
1

variable (cost) based on the regression line,

at a particular activity level
Ÿ denotes the mean (average) observation of the
dependent variable (cost)

Tabulation of data: Predicted Cost

(in thousands)

Regression
Month Y X
January 20 12
February 19 10
March 18 9
April 19 14
May 17 8
June 20 11
July 21 15
August 17 9
September 21 12
October 19 10
 November 24 14
December 18 11
Total 233 135
Rounded
†

Calculation of R2: 0.58

Briefly interpret R2:

The coefficient of determination, R2, is a measure of the goodness of a fit of the least-squares
regression line. An R2 of .58 means that 58% of the variability of the dependent variable about
its mean is explained by the variability of the independent variable about its mean. The higher
the R2 , the better the regression line fits the data. The interpretation of a high R 2 is that the
independent variable is a good predictor of the behavior of the dependent variable. In the
county's cost estimation, a high R2 would mean that the county budget officer can be
relatively confident in the cost predictions based on the estimated-cost behavior pattern.
An R2 of .58 is not particularly high.
 Student Name: Instructor
Class: McGraw-Hill/Irwin

Costs
AirportCosts

Jefferson County Airport

Madison County Airport
Airport

12
12
10
10
88
66
44
22
00
00 250
250
Flights
Flights

X2 XY
121 220
64 136
196 266
81 162
100 190
144 240
121 198
196 336
100 190
144 252
81 153
225 315
1,573 2,658
e dependent

e dependent

ervation of the

Predicted Cost
(in thousands)
Based on
Regression
Line Y' [(Y-Y')2]† [(Y-Ÿ)2]†
19.920 0.006 0.340
18.566 0.188 0.174
17.889 0.012 2.007
21.274 5.171 0.174
17.212 0.045 5.840
19.243 0.573 0.340
21.951 0.904 2.507
17.889 0.790 5.840
19.920 1.166 2.507
18.566 0.188 0.174
21.274 7.431 21.007
19.243 1.545 2.007
18.019 42.917