The Humble Company determined that feet of lumber was the appropriate measure of activity for the cutting department. A sample of actual cost data for 2022 was selected as follows:

a. Draw the sample observations on a scatterplot. Apply visual approximation to determine the variable and fixed costs. Does your graph resemble the graph below?

b. Compare this graph with the graph presented in Exercise 3. Which graph gives you more assurance of a positive relationship between the dependent (costs) and independent (activity) variables?

c. Apply the high–low method to the data and determine the variable and fixed costs.

d. Using the high–low method, what is the total cost estimate for 90,000 feet of lumber?

Data from Exercises 3

From the visual fit, do you believe that there is a strong relationship between activity and costs and that all observations are a good representation?

Transcribed Image Text:

Month of Observation January February March April May Total Costs $100,000 200,000 170,000 280,000 210,000 Activity (feet of lumber) 60,000 120,000 90,000 240,000 180,000