You are on page 1of 8

# Gene Butcher is owner and president of Butcher Products, Inc.

## a small company that makes fibre

glass ducting for cable installations. Gene has been studying the number of duct units manufactured
per day over the past two and a half years and is concerned about the wide variability in this figure.
To forecast production output, costs, and revenue properly, Gene needs to establish a relationship
between output and some other variable.

Based on his experience with the company, Gene is unable to come up with reason for the variability
in the output until he begins thinking about weather conditions. His reasoning is that the outside
temperature may have something to do with the productivity of his workforce and the daily output
received.

He randomly selects several days from his records and records the number of ducting units produced
for each of these days. He then goes to the local weather bureau and, for each of the selected days
records the high temperature for the day. He is then ready to run a correlation stud between these two
figures when he realizes that output would probably be related to deviation from an ideal temperature
rather than the temperature itself. That is, he thinks that a day that is either too hot or too cold would
have a negative effect on production when compared with a day that has an ideal temperature. He
decides to convert his temperature readings to deviations from 65 degrees Fahrenheit, a temperature
he understands is ideal in terms of generating high worker output.

His data appear as follows: Y represents the number of units produced, while X represents the
absolute difference (negative signs eliminated) between the day’s high temperature and 65 degrees:

Gene performs a regression analysis using his company’s computer and the Minitab software
program. Gene is pleased to see the results of his regression analysis .The t values are high,
indicating that both coefficients in the sample regression equation (552 and – 8.9) are significant :For
both, the significance level is near zero, as indicated by the p values for the t test.

Turning to r squared, gene is some what disappointed to find that this value, although satisfactory, is
not as high as he had hoped (64.2%). However, he decides that it is high enough to begin thinking
about ways to increase daily production levels.
Solution:

Step1 :Prepare the table as per the below format and write down the value of x and y.

## y dy=y-A dˆ2y yˆ2 dxdy x dx=x-A dˆ2x xy

4 50. 2,574. 2,35,2 -1. 1. 5,8
85 74 46 25 -61.77 12 22 48 20
5 77. 6,043. 2,62,1 -3. 10. 5,1
12 74 37 44 -250.12 10 22 35 20
6 190. 36,381. 3,90,6 -10. 104. 1,8
25 74 40 25 -1,948.86 3 22 40 75
5 150. 22,722. 3,42,2 -9. 84. 2,3
85 74 28 25 -1,389.42 4 22 96 40
3 -116. 13,516. 1,01,1 13. 189. 8,5
18 26 60 24 -1,602.38 27 78 96 86
4 -29. 856. 1,64,0 -3. 10. 4,0
05 26 20 25 94.14 10 22 35 50
3 -55. 3,053. 1,43,6 4. 22. 6,8
79 26 77 41 -264.29 18 78 87 22
4 62. 3,936. 2,47,0 -1. 1. 5,9
97 74 19 09 -76.38 12 22 48 64
3 -118. 13,985. 99,8 13. 189. 8,5
16 26 64 56 -1,629.94 27 78 96 32
3 -83. 6,932. 1,23,2 6. 46. 7,0
51 26 38 01 -564.73 20 78 00 20
5 90. 8,233. 2,75,6 -9. 84. 2,1
25 74 58 25 -836.38 4 22 96 00
3 -39. 1,541. 1,56,0 -2. 4. 4,3
95 26 42 25 87.06 11 22 92 45
3 -107. 11,504. 1,06,9 1. 3. 4,9
27 26 90 29 -191.20 15 78 18 05
3 -126. 15,941. 94,8 11. 138. 7,7
08 26 81 64 -1,487.68 25 78 83 00
6 168. 28,472. 3,63,6 -5. 27. 4,8
03 74 88 09 -880.38 8 22 22 24
3 -113. 12,828. 1,03,0 21. 474. 11,2
21 26 03 41 -2,467.12 35 78 48 35
4 -8. 68. 1,81,4 -8. 67. 2,1
26 26 24 76 67.88 5 22 53 30
4 -24. 588. 1,68,1 -1. 1. 4,9
10 26 59 00 29.54 12 22 48 20
5 80. 6,518. 2,65,2 -11. 125. 1,0
15 74 80 25 -905.68 2 22 83 30
4 63. 4,062. 2,48,0 -6. 38. 3,4
98 74 67 04 -396.29 7 22 66 86
3 -77. 5,969. 1,27,4 3. 14. 6,0
57 26 25 49 -292.25 17 78 31 69
4 -5. 27. 1,84,0 -5. 27. 3,4
29 26 68 41 27.45 8 22 22 32
4 -33. 1,106. 1,60,8 -1. 1. 4,8
01 26 29 01 40.49 12 22 48 12
9,9 2,06,866.4 45,44,26 3 1,671.9 1,17,11
88 0 3 4 - 14,898.30 04 0 1 7

## Step2: To find x and y

x = ∑x/n = 304/23 = 13.217
y = ∑y/n = 9988/23 = 434.260

byx = P/σx2

bxy = P/σy2

Where

P = -647.75

## σ2x = 1671.91 / 23 – (0/23)2

σ2x = 72.69

σ2y = 206866.43/23 =

σ2y = 899.19

byx = -647.75/72.69

byx = -8.910

bxy= -647.75/899.19

bxy= -0.07202

## ∑dxdy / (Sqrt(∑d2x) * Sqrt(∑d2y)98.3/(Sqrt(1671.913) * sqrt(206866.43))

r= -148983.3/(40.889 * 454.826)

r= -148983.3/ 18597.38

r= -0.8011

## Step 4: Find the regression line y on x

y – y = byx(x – x )

## y – 434.26= -8.910x + 117.763

y = 552.02 – 8.91x

Q1. How many units would you forecast for a day in which the high temperature is 89 degrees?

Since x represents the absolute difference (negative sign eliminated) between the day’s high
temperature and 65 degrees,

then x = 89 – 65 = 24

y = 552.02 – 8.910x

y = 552.02 – 8.910 * 24

y = 552.02 – 213.84

y = 338.18 units

Q2. How many units would you forecast for a day in which the high temperature is 41 degrees?

Since x represents the absolute difference (negative sign eliminated) between the day’s high
temperature and 65 degrees,

then x = 49 – 65 = 24

y = 552.02 – 8.910x

y = 552.02 – 8.910 * 24

y = 552.02 – 213.84

y = 338.18 units

Q3. Based on the results of the regression analysis as shown earlier, what action would you advise
Gene to take in order to increase daily output?
In order to increase the daily output, Gene must produce his units at the ideal temperature. The ideal
temperature is 65 degrees Fahrenheit.

## Q4.Do you think Gene has developed an effective forecasting tool?

a=552.04 b= -8.91

## = Sqrt((4544264 - 552.02(9988) – (-8.910)(117117))/(23-2))

=sqrt(74200.71/21)

=sqrt(3533.367)

## Standard error =59.44

Step1: find the estimated standard error of regression coef y on x which is denoted by Sb1

## Standard error of b1 = Standard error of byx / Sqrt(∑(x- x )2

Sb1 = 59.44/40.88

Sb1 = 1.4536

## table value for 1 tail test = 2.831

Hypothesis Testing:

## 2. Alternate Hypothesis, H1 - Linear relationship exists with non zero slope.

3. Test statistics :

t=|byx|/Sb1

t = |-8.910| / 1.4536

t= 6.1298

## 4. Table value for 5% (1 tail test) is 2.831

5. Decision :

Since the calculated value of t is greater than the table value , reject H0.

Hence there exist a linear relationship between the units produced and
the temperature.

Minitab screenshots: