SCENARIO 17-2 One of the Most Common Questions of Prospective $( Y )$

question 261

Multiple Choice

SCENARIO 17-2 One of the most common questions of prospective house buyers pertains to the cost of heating in dollars $( Y )$ . To provide its customers with information on that matter, a large real estate firm used the following 4 variables to predict heating costs: the daily minimum outside temperature in degrees of Fahrenheit $\left( X _ { 1 } \right)$ , the amount of insulation in inches $\left( X _ { 2 } \right)$ , the number of windows in the house $\left( X _ { 3 } \right)$ , and the age of the furnace in years $\left( X _ { 4 } \right)$ . Given below are the EXCEL outputs of two regression models.

Model 1
$\begin{array}{lr}\hline{\text { Regression Statistics }} \\\hline \text { R Square } & 0.8080 \\\text { Adjusted R Square } & 0.7568 \\\text { Observations } & 20 \\\hline\end{array}$ $\text { ANOVA }$
$\begin{array}{lrrrrrr}\hline & d f & & {\text { SS }} & M S & F & \text { Significance } F \\\hline \text { Regression } && 4 & 169503.4241 & 42375.86 & 15.7874 & 0.0000 \\\text { Residual } && 15 & 40262.3259 & 2684.155 & & \\\text { Total } && 19 & 209765.75 & & & \\\hline\end{array}$

$\begin{array}{lrrrrrrr}\hline & \text { Coefficients } & \text { Standard Error } &{\text { t Stat }} & \text { P-value } & \text { Lower 90.0\% } & \text { Upper 90.0\% } \\\hline \text { Intereept } & 421.4277 & 77.8614 & 5.4125 & 0.0000 & 284.9327 & 557.9227 \\\mathrm{X}_{1} \text { (Temperature) } & -4.5098 & 0.8129 & -5.5476 & 0.0000 & -5.9349 & -3.0847 \\\mathrm{X}_{2} \text { (Insulation) } & -14.9029 & 5.0508 & -2.9505 & 0.0099 & -23.7573 & -6.0485 \\\mathrm{X}_{3} \text { (Windows) } & 0.2151 & 4.8675 & 0.0442 & 0.9653 & -8.3181 & 8.7484 \\\mathrm{X}_{4} \text { (Furnace Age) } & 6.3780 & 4.1026 & 1.5546 & 0.1408 & -0.8140 & 13.5702\end{array}$

$\text { Model } 2$
$\begin{array}{lr}\hline {\text { Regression Statistics }} \\\hline \text { R Square } & 0.7768 \\\text { Adjusted R Square } & 0.7506 \\\text { Observations } & 20 \\\hline\end{array}$

$\text { ANOVA }$


$\begin{array}{lrrllrr}\hline & \text { Coefficients } & \text { Standard Error } & t \text { Stat } & \text { P-value } & \text { Lower 95\% } & \text { Upper 95\% } \\\hline \text { Intercept } & 489.3227 & 43.9826 & 11.1253 & 0.0000 & 396.5273 & 582.1180 \\\mathrm{X}_{1} \text { (Temperature) } & -5.1103 & 0.6951 & -7.3515 & 0.0000 & -6.5769 & -3.6437 \\\mathrm{X}_{2} \text { (Insulation) } & -14.7195 & 4.8864 & -3.0123 & 0.0078 & -25.0290 & -4.4099\end{array}$
-Referring to Scenario 17-2, what is the 90% confidence interval for the expected change in heating costs as a result of a 1 degree Fahrenheit change in the daily minimum outside
Temperature using Model 1?

• A) [?6.58, ?3.65]
• B) [?6.24, ?2.78]
• C) [?5.94, ?3.08]
• D) [?2.37, 15.12]

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Definitions:

Finished Goods Inventory

The stock of completed products ready for sale but not yet sold, held by a manufacturing company.

Budgeted Production

The planned volume of goods a company aims to manufacture over a certain period, often used for planning and control purposes.

Raw Materials Inventory

The total cost of all the raw materials that are used in production but have not yet been processed into finished goods.

Raw Materials Purchases

The total cost a company incurs for acquiring the raw materials needed in the production process.