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Cost Forecast Modeling

Chandler Bing is product safety manager at Tribbiani-Buffay Products, Inc., a Las Vegas-based producer of data processing equipment. Bing is evaluating the cost effectiveness of a preventive maintenance program. Bing believes that monthly down- time on the packaging line caused by equipment breakdown is related to the hours spent each month on preventive maintenance.

A. Write an equation to predict next month's downtime using the variables D = downtime, M = preventive maintenance, t = time, a0 = constant term, a1 = regression slope coefficient, and u = random disturbance. Assume that downtime in the forecast (next) month decreases by the same percentage as preventive maintenance increased during the month preceding the current one.

B. If 40 hours were spent last month on preventive maintenance and this month's downtime was 500 hours, what should downtime be next month if preventive maintenance this month is 50 hours? Use the equation developed in part A.

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