E2-20. Scatter Diagrams and High-Low Cost Estimation From April 1 through October 31, Will County Highway Department hires temporary employees to mow and clean the right-of-way along county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations:

Month Miles Mowed Labor

and Cleaned Costs

April ...................................................... 350 $8,000

May ...................................................... 300 7,500

June ...................................................... 400 9,000

July....................................................... 250 5,500

August .................................................... 375 8,500

September ................................................. 200 5,000

October ................................................... 100 4,800

Required

a. Use the information from the high- and low-volume months to develop a cost-estimating

equation for monthly labor costs.

b. Plot the data on a scatter diagram. Using the information from representative high- and low-

volume months, use the high-low method to develop a cost-estimating equation for monthly

labor costs.

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

and (b)?

d. Adjust the equation developed in requirement (b) to incorporate the effect of an anticipated 7

percent increase in wages