Practical Data Analysis: Case Studies in Business Statistics
Sample Case
Case 45: Amchem's Tax Credit
Case 45: Amchem's Tax Credit
Amchem manufactured chemicals in a plant in the Denver metropolitan area. A recent change in the Colorado tax law provided that all nonproduction use of power was subject to state sales tax. Harold knew that much of Amchem's use of natural gas was production-related. The problem was: how much? Public Service Company of Colorado bills and records revealed only the total gas consumption, not its eventual purpose. Harold knew that some part of that consumption went to heat the research facilities and other nonproduction and administrative buildings. That part of it, of course, depended on the weather, among other things, and would be subject to sales tax under the new law.
Harold suspected that most of the gas consumption went into the production processes for two groups of chemicals Amchem produced, labeled generically Group X and Group Y. The chemicals in Group X were fired in electric furnaces that use little gas (what little was used was used in other parts of the production process), while those in Group Y were fired in gas furnaces and used (Harold suspected) quite a lot more gas.
Harold felt that as long as he had a rational, defensible basis for his estimate of how much gas consumption was associated with the production process, he could get a credit of some kind for sales taxes paid on the total amount, and he felt it would be a substantial amount. Looking back over some of the files he'd requested, he found he had information and some quantities of presumed interest, for each month (MONTH) of the last five years (YEAR), as follows.
Harold knew that all these factors somehow contributed to overall gas consumption at Amchem. He figured other factors such as annual plant shutdowns in summer ("turnaround months") might affect things, too, but their effects were presumably represented by lower production during those months. One particularly extended shutdown in July of year 5 might have distorted things a bit, though.
As it got later in the afternoon, Harold wondered if there were some way to organize the information coherently. What he needed was an estimated amount of gas consumption for production use for year 5 that he could defend rationally. It would be even nicer if the method could be made routine, so it could be used in following years. Of course, it would also be possible to simply not claim the credit, but that was unappealing for any number of reasons.
This case is based on a real business situation, though the names of the company and its products have been changed. The data were provided by David W. Howell.
