Given Data P07-46:

JEFFERSON COUNTY AIRPORT

Flights Orginating
at Airport Airport Costs
Month (in hundreds) (in thousands)
January 12 20
February 10 19
March 9 18
April 14 19
May 8 17
June 11 20
July 15 21
August 9 17
September 12 21
October 10 19
November 14 24
December 11 18
Problem 07-46

JEFFERSON COUNTY AIRPORT Jefferson County Airport Costs

24,000
Airport 23,000
Month Flights Costs
January 1,200 20,000 22,000

Airport costs
February 1,000 19,000
March 900 18,000 21,000
April 1,400 19,000 20,000
May 800 17,000
June 1,100 20,000 19,000
July 1,500 21,000
August 900 17,000 18,000
September 1,200 21,000
17,000
October 1,000 19,000
800 1,000 1,200 1,400 1,600
November 1,400 24,000
December 1,100 18,000 Flights

2. Least-squares regression:
(a) Tabulation of data:
Dependent Independent
Variable Variable
(cost in (flights in
thousands) hundreds)
Month Y X X2 XY
January 20 12 144 240
February 19 10 100 190
March 18 9 81 162
April 19 14 196 266
May 17 8 64 136
June 20 11 121 220
July 21 15 225 315
August 17 9 81 153
September 21 12 144 252
October 19 10 100 190
November 24 14 196 336
December 18 11 121 198
Total 233 135 1,573 2,658
Correct! Correct! Correct! Correct!

(b) Calculation of parameters:

a= 11.796 «- Correct!
b= 0.677 «- Correct!

(c) Fixed- and variable-cost components:

Monthly fixed cost = $11,796 «- Correct!
Variable cost = $677 per hundred flights
Correct!
3. Cost equation
Total monthly airport cost =
$11,796 + $677 X
where X denotes the number of flights in hundreds.

4. Cost prediction for 1,500 flights

Airport cost for the month = $21,951 «- Correct!

5. Calculation and interpretation of R 2

Formula for calculation

R2 =1- Σ(Y-Y1)2
Σ(Y-Ÿ)2

Where Y denotes the observed value of the dependent

variable (cost) at a particular activity level
Y denotes the predicted value of the dependent
1

variable (cost) based on the regression line,

at a particular activity level
Ÿ denotes the mean (average) observation of the
dependent variable (cost)

Tabulation of data: Predicted Cost

(in thousands)
Based on
Regression
Month Y X Line Y' [(Y-Y')2]† [(Y-Ÿ)2]†
January 20 12 19.920 0.006 0.340
February 19 10 18.566 0.188 0.174
March 18 9 17.889 0.012 2.007
April 19 14 21.274 5.171 0.174
May 17 8 17.212 0.045 5.840
June 20 11 19.243 0.573 0.340
July 21 15 21.951 0.904 2.507
August 17 9 17.889 0.790 5.840
September 21 12 19.920 1.166 2.507
October 19 10 18.566 0.188 0.174
November 24 14 21.274 7.431 21.007
December 18 11 19.243 1.545 2.007
Total 233 135 18.019 42.917
Rounded
†

Calculation of R2: 0.58 «- Correct!

Briefly interpret R2:
The coefficient of determination, R 2, is a measure of the goodness of a fit of the least-squares
regression line. An R2 of .58 means that 58% of the variability of the dependent variable about
its mean is explained by the variability of the independent variable about its mean. The higher
the R2 , the better the regression line fits the data. The interpretation of a high R 2 is that the
independent variable is a good predictor of the behavior of the dependent variable. In the
county's cost estimation, a high R 2 would mean that the county budget officer can be
relatively confident in the cost predictions based on the estimated-cost behavior pattern.
An R2 of .58 is not particularly high.
 Jefferson County Airport Costs
24,000

23,000

22,000
Airport costs

21,000

20,000

19,000

18,000

17,000
800 1,000 1,200 1,400 1,600
Flights