develop a cost-estimating equation for monthly order-processing costs.
High-Low Cost Estimation
Assume the local DHL delivery service hub has the following information available about fleet miles and operating costs:
Year Miles Operating Costs
2012 556,000 $182,000
2013 684,000 214,000
Required
Use the high-low method to develop a cost-estimating equation for total annual operating costs.
Question 2: Scatter Diagrams and High-Low Cost Estimation
Assume the local Pearle Vision has the following information on the number of sales orders re-ceived and order-processing costs.
Month Sales Orders Order-Processing Costs
1 3,000 S32,000
2 1,500 22,400
3 4,400 55,400
4 2,800 31,200
5 2,300 25,600
6 1,200 17,000
7 2,000 24,000
Required
a. Use information from the high- and low-volume months to develop a cost-estimating equation for monthly order-processing costs.
b. Plot the data on a scatter diagram. Using the information from representative high- and low-volume months, develop a cost-estimating equation for monthly production costs.
c. What factors might have caused the difference in the equations developed for requirements (a) and (h)?
Question 3. Scatter Diagrams and High-Low Cost Estimation
From April I through October 31, Will County Highway Department hires temporary employees to mow and clean the right-of-way along county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations:
Month Miles Mowed and Cleaned Labor Costs
April 350 S8,000
May 300 7,500
June 400 9,000
July 250 5,500
August 375 8,500
September 200 5,000
October 100 4,800
Required
a. Use the information from the high- and low-volume months to develop a cost-estimating equation for monthly labor costs.
b. Plot the data on a scatter diagram. Using the information from representative high- and low-volume months, use the high-low method to develop a cost-estimating equation for monthly labor costs.
c. What factors might have caused the difference in the equations developed for requirements (a) and (b)?
d. Adjust the equation developed in requirement (b) to incorporate the effect of an anticipated 7 percent increase in wages.
