Problem 2 (Least-Squares Regression) HL Rental Car offers rental cars in an off-airport location near...
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Accounting
Problem 2 (Least-Squares Regression)
HL Rental Car offers rental cars in an off-airport location near a major tourist destination in Baguio. Management would like to better understand the behavior of the company's costs. One of those costs is the cost of washing cars. The company operates its own car facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the costs of operating the car wash should be related to the number of rental returns. Accordingly, the following data have been compiled:
Month
Rental Returns
Car Wash Costs (pesos)
January
2,310
10,113
February
2,453
12,691
March
2,641
10,905
April
2,874
12,949
May
3,540
15,334
June
4,861
21,455
July
5,432
21,270
August
5,286
19,930
September
4,628
21,860
October
3,720
18,383
November
2,106
9,830
December
2,495
11,081
Required: Using least-squares regression, estimate the fixed cost and variable cost elements of monthly car wash costs. The fixed cost element should be estimated to the nearest peso and the variable cost element to the nearest centavo.
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