Question 1

Manufacturers Inc.produced a pilot run of fifty units of a recently developed motor used in the finished products.The company expected to produce and sell 5,526 units annually.The pilot run required 21.2 direct labor hours for the fifty motors,averaging.424 direct labor hours per motor.Manufacturers Inc.experienced an eighty-two percent learning curve on the direct labor hours needed to produce new motors.
Required: Assuming the motors are manufactured by Manufacturers Inc. ,calculate the average direct labor hours per unit for the first 800 motors (including the pilot run)produced.

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Question 2

Whittenberg Distributors,a major retailing and mail-order operation,has been in business for the past 10 years.During that time,its mail-order operations have grown from a sideline to represent more than 80 percent of the company's annual sales.Of course,the company has suffered growing pains.At times,overloaded or faulty computer programs resulted in lost sales.And scheduling temporary workers to augment the permanent staff during peak periods has always been a problem.Peter Bloom,manager of mail-order operations,has developed procedures for handling most problems.However,he is still trying to improve the scheduling of temporary workers to take customer telephone orders.Under the current system,Peter keeps a permanent staff of 60 employees who handle the base telephone workload and supplements this staff with temporary workers as needed.The temporary workers are hired on a daily basis;he determines the number needed for the next day the afternoon before based on his estimate of the upcoming telephone volume.Peter has decided to try regression analysis to improve the hiring of temporary workers.By summarizing the daily labor-hours into weekly totals for the past year,he determined the number of workers used each week.In addition,he listed the number of orders processed each week.After entering the data into a spreadsheet,Peter ran two regressions.Regression 1 related the total number of workers (permanent staff plus temporary workers)to the number of orders received.Regression 2 related only temporary workers to the number of orders received.The output of these analyses follows: Regression model: W = a + b * T where: W = workers;T = telephone orders

Accepted Answer

Required:
(1)Peter Bloom estimates that Whittenberg Distributors will receive 12,740 orders during the second week of December.
(a)Predict the number of temporary workers needed for this week using regression 1.Round your answer to the nearest whole number.
(b)Using regression 2,predict the number of temporary workers needed during this week.Round your answer to the nearest whole number.
(2)Which of the two regression analyses appears to be better? Explain your answer.
(3)Describe at least three ways that Peter Bloom could improve his analysis to make better predictions than either of these regression results provides.(CMA Adapted)
Please see Feedback for answers.
 Feedback: (1)(a)Using the regression results relating total workers to the number of orders received (Regression I),the number of temporary workers needed is 17,calculated as follows:
W = a + bT
= 21.938 + .0043 (12,740)
= 76.720 (Round to 77)
Total workers needed 77
Less permanent workers 60
Temporary workers 17
(b)Using the regression analysis that relates the number of temporary workers to the number of orders received (Regression 2),the number of temporary workers needed is 19,calculated as follows:
W = a + bT
= -46.569 + .0051 (12,740)
= 18.405
Temporary workers = 19 (rounded)
(2)Regression Analysis 2 appears to be better for the following reasons.
- The standard error of the estimate is lower for Regression 2 (1.495 vs.3.721)which usually means that the prediction is expected to be more accurate.However,note that the dependent variable in Regression 2 (temporary workers)is on the average somewhat smaller (about 1/4)that of regression 1 (total workers),so that the standard errors are not directly comparable.Because the dependent variable for Regression 2 is smaller,we would expect the standard error also to be smaller.Bloom needs to compare the SE to the mean of the dependent variable (not available in this case)to further understand whether the regressions provide useful predictions
- The coefficient of determination is higher for Regression 2 (.755 vs..624)which indicates a more reliable regression model;the R Squared values are OK but not particularly strong.
- The t-value is slightly higher for regression 2 (2.04 vs.1.95 for regression 1);neither t-value is particularly good,an indication of a weak relationship between the independent variable and the dependent variable.
- Since both the regressions are quite similar,Bloom should consider why one should lead to better results than the other.That is,could not Bloom argue that regression 1 is preferred on the logical basis that there should be a stronger relationship between total orders and total number of workers? Even if the statistical measures are more favorable for regression 2,regression 1 might be preferable because it represents a more plausible relationship.Since any regression is based on a sampling of data observations,it might be that if several regressions were done over many time periods,the regression 1 model would show better statistical measures.
(3)At least three ways that Peter Bloom could improve his analysis in order to get better predictions are described below.
- Perform regression calculations on a daily rather than weekly basis,since Bloom is analyzing the need for temporary workers on a daily rather than a weekly basis.
- Note the comment (in part 2 above)about the need for further data analysis to examine the value of regression 1 versus regression 2.
- Run the regression on data for more than one year if this data is available.If the historical data
is a good indicator of future trends,this will result in better predictions of expected orders.If several months of data are used,Bloom should make sure that there are no shifts or cyclical changes in the data over this longer period of time.
- Graph the data and look for outliers and other signs of non-linearity;note however that the Durbin Watson statistics for both regressions are in the OK range.
- Study the data for seasonality and modify the model if appropriate.

Question 3

School Kids' Compact Disc Store expanded the size of its store in Westfield,NJ two months ago.The owner,Montgomery Brown,has asked you to develop an analysis of the cost structure in his store,as a basis for assessing the profitability of his business.He provides you with account data for the most recent month,which he explains is representative of what these costs are in most months of the year;there is not much seasonality in his business.Last month,May,890 compact discs were sold.This month Montgomery expects to sell 1,100 CDs.

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Question 4

Regression analysis is increasingly being used in business applications,often called "business analytics" (or "predictive analytics"),in which a company studies its customers to gather information that can be used to make each customer more profitable.Companies that do this include Harrah's and eHarmony,among many others.
Required:
(1)Briefly explain how a company could use regression to improve customer profitability.
(2)Do you see any ethical issues involved in the use of business analytics? Explain.

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Question 5

Elisko Inc.is a major book distributor.Elisko's Shipping Department consists of a manager plus ten other permanent positions- four supervisors and six loaders.The four supervisors and six loaders provide the minimum staff and frequently must be supplemented by additional workers,especially during the weeks when the volume of shipments is heavy.Thus,the number of people shipping the orders frequently averages over 30 per week,i.e. ,ten permanent persons plus 20 temporary workers.The temporary workers are hired through a local agency.Elisko must use temporary workers to maintain a minimum daily shipment rate of 95 percent of orders presented for shipping.The loss of efficiency from using temporary workers is minimal,and the $10.00 per hour cost of temporary workers is less than the $15.00 per hour for the loaders and $22.50 per hour for the supervisors on Elisko's permanent staff.The agency requires Elisko to utilize each temporary worker for at least four hours each day.Jim Locter,Shipping Manager,schedules temporary help based on forecasted orders for the coming week.Supervisors serve as loaders until temporary help is needed.A supervisor stops loading when the ratio of loaders to supervisors reaches 7: 1.Locter knows that he will need temporary help when the forecasted average daily orders exceed 300.Locter has frequently requested from two to four extra temporary workers per day to guard against unexpected rush orders.If there was not enough work,he would dismiss the extra people at noon after four hours of work.The agency has not been pleased with Locter's practice of overhiring and has notified Elisko that it is changing its policy.From now on,if a person is dismissed before an eight-hour assignment is completed,Elisko will still be charged for an eight-hour day plus mileage back to the agency for reassignment.This policy would go into effect the following week.Paula Brand,General Manager,called Jim Locter to her office when she received the notice from the agency.She told Locter,"Your staffing has to be better.This penalty could cost us up to $300-$500 per week in labor cost for which we receive no benefit.Why can't you schedule better?" Locter replied,"I agree that the staffing should be better,but I can't do it accurately when there are rush orders.By being able to layoff people at noon,I have been able to adjust for the uncertain order schedule without cost to the company.Of course,the agency's new policy changes this."
Locter and Brand contacted Elisko's Controller,Mitch Berg regarding Locter's problem on how to estimate the number of people needed each week.Berg reasoned that Locter needed a quick solution until he could study the work flow.Berg suggested a regression analysis using the number of orders shipped as the independent variable and the number of workers (permanent plus temporary)as the dependent variable.Berg indicated that data for the past year was available 'and that the analysis could be done quickly using the accounting department's software.Berg completed the two regression analyses that are presented below.The first regression was based on the data for the entire year.The second regression excluded the weeks when only the 10 permanent staff persons were used;these weeks were unusual and appeared to be out of the relevant range.Locter was not familiar with regression analysis and,therefore,was unsure how to implement this technique.He wondered which regression data he should employ,i.e. ,which one was better.When he recognized that the regression was based on actual orders shipped by week,Berg told him he could use the forecasted shipments for the week to determine the number of workers needed.

Accepted Answer

The answer of Elisko Inc.is a major book distributor.Elisko's Shipping...

Question 6

Clothes for U is a large merchandiser of apparel for budget-minded families.Management recently became concerned about the amount of inventory carrying costs and transportation costs between warehouses and retail outlets.As a starting point in further analyses,Gregory Gonzales,the controller,wants to test different forecasting methods and then use the best one to forecast quarterly expenses for 2010.The relevant data for the previous three years follows:  
The results of a simple regression analysis using all 12 data points yielded an intercept of $11,854.55 and a coefficient for the independent variable of $126.22 (R-squared = .19,t = 1.5,SE = 974).
Required:
(1)Calculate the quarterly forecasts for 2010 using the high-low method and regression analysis.Recommend which method Gregory should use and explain why.
(2)How does your analysis in requirement 1 change if Clothes for U is involved in global sourcing of products for its stores?  
Please see Feedback for answers.

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Question 7

Train Express Co. ,which manufactures train engines,is attempting to predict its maintenance costs more accurately.Maintenance costs are a mixed cost.Maintenance costs and machine hours for the first four months of the year are as follows:

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The answer of Train Express Co. ,which manufactures train engines,is...

Question 8

Learning Curves Moss Point Manufacturing recently completed and sold an order of 50 units that had the following costs:

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The answer of Learning Curves Moss Point Manufacturing recently completed...

Question 9

Andrews & Henderson Inc.is a manufacturer of mining equipment in Colorado.Eric Andrews,the founder of the corporation,has just won a new contract from Shakley Inc.to build seven new tunneling machines for a price of $500,000 each.The machines are to be delivered in the next seven months.The costs associated with the production of the first machine are listed below.Eric estimates that an 85% cumulative average learning rate exists for these types of projects.Following is the cost information for the first tunneling machine:

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Question 10

Quick Telephone Response (QTR)was started several years ago to provide an outsource telephone service for the growing number of small,specialty catalog mail-order companies that commenced operations in recent years.Since most of the calls are received between 10 a.m.and 2 p.m. ,QTR began offering a telephone answering service to attempt to fill the remainder of the day for its operators.However,as outsource competition has recently increased,QTR analyzed its operations and concluded that it should focus on its core business of providing service to its mail- order clients only.To bring operating costs into line,QTR concluded that it should shed some of its full-time operators and replace them with part-time operators in order to cover the peak mid-day calling period.Weldon Miller,director of the Telephone Response Operations Department,engaged a consultant to assist in analyzing the situation and determining the number of full-time and part-time employees that will be required to meet QTR's variable operating schedule.Based on a study of one month's activity they concluded that the number of daily orders received for their specialty clients averaged 3,450 with the mid-day period averaging 2,250 orders.They calculated that there would be a need to retain twenty five (25)full-time employees.They further developed two regression analyses.Regression 1 relates to the average of 3,450 orders per day and Regression 2 relates to the average of 2,250 peak mid-day orders.The data resulting from these analyses are presented below.
Regression Equation: where: E = a + bN E = Employees N = Number of orders

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Quiz 8: Cost Estimation

Train Express Co. ,which manufactures train engines,is attempting to predict its maintenance costs more accurately.Maintenance costs are a mixed cost.Maintenance costs and machine hours for the first four months of the year are as follows:

Learning Curves Moss Point Manufacturing recently completed and sold an order of 50 units that had the following costs: