Scatter Diagrams and High-Low Cost Estimation (LO2, 3)

Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs.

Month Sales Orders Order-Processing Costs

(SeBes ,ea e 3,000 $32,000 QE Lc Ser sae 1,500 22,400 OPT eaten Se 4,000 52,000 ey eee 2,800 31,200 B52 aitar eS 2,300 25,600 ShahA dee ae 1,000 16,000 Th dpe 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 lowvolume 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

(b)? (p. 66)