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:

MonthMiles Mowed

and CleanedLabor

CostsApril350$16,000May30015,000June40018,000July25011,000August37517,000September20010,000October1009,600

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

Monthly labor costs=

+

X

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.

Monthly labor costs=

+

X

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

Monthly labor costs=

+

X