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Dear Mr John,
Going through my study text I came across this question and solution on regression analysis.
“Regression analysis was used to find the equation Y=300-4.7x, where X is time (in quarters) and Y is sales level in thousands of units. Given that X=0 represents 20X0 quarter 1 what are the quarter sales level for 20X5 quarter 4?
ANSWER
X=0 corresponds to 20X0 quarter 1
Therefore X = 23 corresponds to 20X5 quarter 4
Forecast sales = 300-(4.7×23)
= 191.9.”I understand every bit except how the “×=23” was gotten.
Kindly explain.
2) A manufacturing company uses 25000 components at an even rate during a year. Each order placed with the supplier of the component is for 2000 components which is the reorder quantity. The company holds a buffer inventory of 500 component site. The annual cost of holding one component in inventory is $2.
What is the total annual cost of holding inventory of the component?
Answer
[Buffer inventory + (EOQ/2)] x annual cost
Ie $3000
My question then is, can I conveniently say the total annual cost = average inventory x annual holding cost cost per component?
Thank you
If quarter 1 of X0 is 0; then quarter 2 of X0 is 1; qtr 3 of X0 is 2; qtr 4 of X0 is 3; qtr 1 of X1 is 4; qtr 2 of X1 is 5…….and so on.
Just keep counting until you get to qtr 4 of X5.The annual holding cost is always average inventory x holding cost per unit.
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