Lexon Inc. is a large manufacturer of affordable DVD players. Management recently became aware of rising expenses resulting from returns of malfunctioning products. As a starting point for further analysis, Paige Jennings, the controller, wants to test different forecasting methods and then use the best one to forecast quarterly expenses for 2019. The relevant quarterly data for the previous three years follow:

The result of a simple regression analysis using all 12 data points yielded an intercept of $11,855.55 and a coefficient for the independent variable of $126.22. (R-squared = 0.44, SE = $974.89.)

Required

1. Plot the data in the order of the dates.

2. Looking at the graph you prepared for requirement 1, select two representative data points and calculate the quarterly forecast for 2019 using the high-low method.

3. Calculate the quarterly forecasts for 2019 using the results of a regression analysis. Evaluate the results of the regression analysis and make appropriate changes to improve the model.

4. How does your analysis of costs change if Lexon manufactures its products in multiple global production facilities to serve the global market?

Transcribed Image Text:

2017 Quarter 2016 Quarter Return Expenses 2018 Quarter Return Expenses Return Expenses $12,500 $12,900 $13,300 12,300 2 3 4 2 3 4. 12,100 11,700 11,600 13,700 14,000 14,600 4.