Soaring, Inc., makes paragliders, most of which are custom-designed for the customer. Customer costs, the costs incurred to support customers, are a major component of the company’s income statement. The owners of Soaring would like to have a more accurate picture of what is driving customer costs and have collected the following data related to paraglider sales:

The management accountant runs regressions on each of the possible cost drivers and estimates these cost functions:

Customer costs = $ 1,391 + ($ 19.057 * Number of design@ hours)

Customer costs = $ 2,267 + ($ 50.097 * Number of customer orders)

Required

1. Plot the data and draw the regression line for customer costs and number of customer orders. Plot the data and draw the regression line for customer costs and number of design- hours. Which driver would you choose to predict customer costs?

2. Soaring received a call from a customer who would like to order a paraglider that could hold two passengers. The design of this type of glider would require 10 design hours. What are the expected customer costs for this customer if design hours is used to predict customer costs? The company may get additional orders from other customers for a similar design. Should Soaring charge the customer for all the customer costs related to this order?

3. The owners of Soaring anticipate many return customers in the following months. Return customers require fewer custom designs since existing designs for these customers provide a significant reduction in design time. How does this information affect your choice of the driver for customer costs?

Transcribed Image Text:

Month Customer Costs Number of Customer Orders Number of Design-Hours 1 $4,500 50 190 2 2,600 20 80 3 5,300 75 230 4 6,550 60 240 5,850 55 210 3,370 10 70 7 3,480 45 130