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

From April | through October 31, Knox 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:

Miles Mowed Labor Month and Cleaned Costs ANDI MR Restenarecoeee s 350 $8,000 Maaacne ee csc 300 7,500 JOE aie si one ee 400 9,000 SLUW hos eespMieraie eeaepsane r 250 5,500

/NUCUWE cAc cag eetone 375 8,500 September ......... 200 5,000

@ciopeneerscnaeoo n 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 lowvolume 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. (p. 66)