The following are the results of the least squares regression method which was run to separate the fixed and variable components of the Zulli Corporation's monthly factory utility costs using the number of products produced: y = 49,222.2992 + 5.09 x R2
= .97765 a) Assume Zulli budgets production of 5,400 units in June, what should budgeted utility costs be? b) Explain what R2 means. Is this equation a good predictor of utility costs?
a) Budgeted utility costs at 5,400 units of production (rounded to the nearest dollar):
y = 49,222 + 5.09 (5,400)
y = 49,222 + 27,486
y = 76,708
b) R2 = .97765 means that 97.8% of the variation in the utility cost is explained by the variation in the number of units produced. This is very high and it is an indication that units of production are a good variable to use in explaining changes in utilities cost.
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