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)?