Selecting an Independent Variable: Scatter Diagrams (LO2, 3)

Peak Production Company produces backpacks that are sold to sporting goods stores throughout the Rocky Mountains. Presented is information on production costs and inventory changes for five recent months:

January February March April May Finished goods inventory in units:

Beginningiec. a1. .7: - 30,000 40,000 50,000 30,000 60,000 Manufactured........ 60,000 90,000 80,000 90,000 100,000 AVAIADIC cian. aw cee xs 90,000 130,000 130,000 120,000 160,000 Selle Me oe een (50,000) (80,000) (100,000) (60,000) (120,000)

ANSIMGl cc comuana hs apePe 40,000 50,000 30,000 60,000 40,000 Manufacturing costs... $250,000 $450,000 $400,000 $400,000 $500,000 Required

a. With the aid of scatter diagrams, determine whether units sold or units manufactured is a better predictor of manufacturing costs.

b. Prepare an explanation for your answer to requirement (a).

c. Which independent variable, units sold or units manufactured, should be a better predictor of selling costs? Why? (p. 66)