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 Order Order Processing Costs

1 3,000 $82,700

2 1,500 50,375

3 4,400 120,700

4 2,800 81,900

5 2,300 69,775

6 1,200 43,100

7 2,000 62,500

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 )?