Zap, Inc., manufactures and sells a broadleaf herbicide that kills unwanted grasses and weeds. Via their television commercials, Zap encourages homeowners to “take control of their yard” by purchasing one of their “ZAP” kits for $39.95. Each “ZAP” kit includes a 32-ounce bottle of weed and grass killer concentrate and a 16-ounce bottle of poison ivy and tough brush killer concentrate. A review of the firm’s production and cost data for the previous four quarters revealed the following:

Required:
a. Use the high-low method to estimate Zap’s quarterly cost equation (i.e., use the high low method to estimate Zap’s quarterly fixed costs and variable cost per ZAP kit sold).
b. Using the four data points provided, graph Zap’s total costs (y-axis) as a function of the number of Zap kits sold (x-axis). Does any particular data point strike you as being unusual?
c. Since the data point for the second quarter appears to be “different” from the other data points, you decide to ask management whether anything unusual occurred in this quarter. Management informs you that, similar to prior years, the firm runs extra advertising in the second quarter, just before the peak summer months when weeds are most active. How does this information affect your analysis? Reestimate Zap’s quarterly cost equation, ignoring the data from the second quarter. Use this new cost equation to estimate the amount Zap spent on extra advertising during the second quarter.
d. What inferences do you draw about graphing the data and ensuring data validity before estimating a firm’s coststructure?

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uarter First Second Third Fourth ZAP Kits Sold 5,400 9,600 6,000 4,500 Total Costs $187,800 $268,200 $192,000 $181,500