The correlation coefficient and coefficient of determination

Assignment Help Operation Management

Reference no: EM132231000

Ohio Swiss Milk Products manufactures and distributes ice cream in Ohio, Kentucky and West Virginia. The company wants to expand operations by locating another plant in northern Ohio. The size of the new plant will be a function of the expected demand for ice cream within the area served by the plant. A market survey is currently under way to determine that demand.

Ohio Swiss wants to estimate the relationship between the manufacturing cost per gallon and the number of gallons sold in a year to determine the demand for ice cream and, thus, the size of the new plant. The following data have been collected.

a) develop a regression equation to forecast the cost per gallon as a function of the number of gallons produced.

Plant - Cost per thousan gallons - Thousands of Gallons sold

1 $1015 - 416, 9

2 $973 - 472,5

3 $1046 - 250

4 $ 1006 - 372,1

5 $ 1058 - 238,1

6 $ 967 - 597

7 $ 997 - 414

8 $ 1044 - 263.2

9 $ 1008 - 372

10 $1008 - 372

total $ 10,182 - 3.654, 4

b) What are the correlation coefficient and the coefficient of determination? Comment on your regression equation in light of these measures.

c) Suppose that the market survey indicates a demand of 325,000 gallons in the Bucyrus, Ohio area. Estimate the manufacturing cost per gallon for a plant producing 325,000 gallons per year.

Reference no: EM132231000

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