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Multiple Regression Analysis for a Special Decision (Requires Computer Spreadsheet) For billing purposes, assume Phoenix Family Medical Clinic classifies its services into one of four major procedures, X1 through X4. A local business has proposed that Phoenix provide health services to its employees and their families at the following set rates per procedure:

X1	$100
X2	200
X3	60
X4	300

Because these rates are significantly below the current rates charged for these services, management has asked for detailed cost information on each procedure. The following information is available for the most recent 12 months.

		Number of Procedures
Month	Total Cost	X1	X2	X3	X4
1	$17,250	30	25	155	19
2	18,750	38	30	135	23
3	20,250	50	20	105	38
4	14,250	20	25	90	25
5	15,000	68	15	120	20
6	20,250	90	19	158	14
7	19,125	20	30	143	28
8	16,125	16	30	132	20
9	19,500	60	21	93	35
10	16,500	20	22	75	35
11	17,100	20	18	113	33
12	19,875	72	15	150	30

Required a. Use multiple regression analysis to determine the unit cost of each procedure. How much variation in monthly cost is explained by your cost-estimating equation?

Round each answer to two decimal places.

Y

=

Answer

+

Answer

X1

+

Answer

X2

+

Answer

X3

+

Answer

X4

b. Evaluate the rates proposed by the local business. Assuming Phoenix has excess capacity and no employees of the local business currently patronize the clinic, what are your recommendations regarding the proposal?

Use negative signs with answers only to indicate a loss. Otherwise do not use negative signs with your answers.

Comparison of Proposed Rates and Estimated Variable Costs
Procedure	X1	X2	X3	X4
Proposed rate	Answer	Answer	Answer	Answer
Estimated cost	Answer	Answer	Answer	Answer
Profit (loss)	Answer	Answer	Answer	Answer

c. Evaluate the rates proposed by the local business. Assuming Phoenix is operating at capacity and would have to turn current customers away if it agrees to provide health services to the local business, what are your recommendations regarding the proposal?

Phoenix should accept the proposal.

Phoenix should reject the proposal.

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