Question 1: 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.