Cross Distribution Company uses three different independent variables (number of orders, weight of orders, number of letters in delivery address) in three different equations to evaluate costs of the packaging department. The most recent results of the two regressions are as follows:

Number of orders:

Variable Coefficient Standard Error t-Value

Constant $854.50 $571.02 2.10

Predictor Variable $12.40 $1.47 7.12

r2 = 0.87

Weight of orders:

Variable Coefficient Standard Error t-Value

Constant $1,642.54 $705.33 1.50

Predictor Variable $9.80 $2.10 4.65

r2 = 0.72

Number of letters in delivery address:

Variable Coefficient Standard Error t-Value

Constant $2,143.30 $444.21 1.60

Predictor Variable $(11.80) $3.10 5.32

r2 = 0.92

Required:

a. What are the estimating equations for each cost driver?

b. Which cost driver is best and why?

c. Prepare the cost equation using the following high and low points:

High point = $12,900 and 700 orders

Low point = $5,200 and 200 orders

Comment on the appropriateness of this cost equation compared to the results obtained in requirement a.