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Estimating Machine Repair Costs In an attempt to determine the best basis for predicting machine repair costs, the production su- pervisor accumulated daily information on these costs and production over a one-month period.
Applying simple regression analysis to the data, she obtained the following estimating equation:
Y = $800 - $2.60X
where Y = total daily machine repair costs X = daily production in units Because of the negative relationship between repair costs and production, she was somewhat skep- tical of the results, even though the R-squared was a respectable 0.765.
a. What is the most likely explanation of the negative variable costs?
b. Suggest an alternative procedure for estimating machine repair costs that might prove more useful.
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