Organizing data, high-low method. Ken Howard, financial analyst atJVR Corporation, a manufacturer of precision parts, is examining the behaviour of quarterly maintenance costs for budgeting purposes. Howard collects data on machine-hours worked and maintenance costs for the past 13 quarters. The data are as follows:

Quarter Machine-Hours Maintenance Costs 1 90,000 $282,000 2 110,000 222,000 3 100,000 264,000 4 120,000 240,000 5 85,000 288,000 6 105,000 204,000 7 95,000 258,000 8 115,000 234,000 9 95,000 282,000 10 115,000 228,000 11 105,000 270,000 12 125,000 216,000 13 90,000 300,000 Required 1

a. Present plots of the quarterly data underlying the cost function: Maintenance costs =

a + (b X Machine-hours).

b. Estimate the cost function for the data represented by the plots in requirement 1(a)

using the high-low method.

c. How well does the cost function fit the data?

2

a. Construct a table and present plots of the quarterly data relating machine-hours in a quarter (t, say) to maintenance costs in the following quarter (t + 1). That is, plot machine-hours in quarter 1 against maintenance costs in quarter 2, machine-hours in quarter 2 against maintenance costs in quarter 3, and so on.

b. Estimate the cost function for the data represented by the plots in requirement 2(a)

using the high-low method.

c. How well does the cost function fit the data?

3. Howard anticipates that JVR will operate machines for 95,000 hours in quarter 14.

Calculate the predicted maintenance costs in quarter 14 using the cost functions estimated in requirements 1

(b) and 2(b). What maintenance costs should Howard budget for quarter 14? Explain your answer briefly.