E15-19. Scatter Diagrams and High-Low Cost Estimation

Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs.

Month			Sales Orders		Order Processing Costs
1			3,300		$90,970
2			1,650		55,412
3			4,840		132,770
4			3,080		90,090
5			2,530		76,752
6			1,320		47,410
7			2,200		68,750

Required

a. Use information from the high- and low-volume months to develop a cost-estimating equation for monthly order-processing costs.

b. Plot the data on a scatter diagram. Using the information from representative high- and low-volume months, develop a cost-estimating equation for monthly production costs.

c. What factors might have caused the difference in the equations developed for requirements (a) and (b)?