Dylan Flaherty, marketing clerk for TipTop Marketing Agency, recorded the following information for 2014:

He would like to be able to estimate customer service costs using the number of customers as the basis for estimation. However, because he has never taken a course in managerial accounting, he does not know how to set up a cost equation. He has therefore approached you for help.

Required:

1. Set up a cost equation for monthly customer service costs using the high?low method.

2. Using the equation from part (1), compute the estimated customer service costs if the number of customers is expected to be 550.

3. You also used the least-squares regression method to do the analysis of the costs; the analysis resulted in the following output:

Intercept: . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 82,231.04Coefficient of X-variable: . . . . . . . .. . . . . . . . . . . . . . . . . 1,227.02Adjusted R square: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.91

? Set up a cost equation using the above numbers.

? Explain the significance of R square.

Transcribed Image Text:

Number of Customers Month Customers Service Costs January .... February March.... 341 $524,908 402 542,010 318 479,280 April..... May .. June July..... August .... September..... October.... 496 698,340 385 528,250 442 654,660 351 541,970 480 678,900 330 468,540 498 679,440 November ..... 428 626,780 December ... 400 540,500