Problem:
Controller completed a cost study of the firms' material handling department in which he used work measurement to quantify departments' activity. Factor unit used in the work measurement study was hundreds of kg of equipment unloaded or loaded at the company's loading dock.
Month units of activity material handling dpt cost
In hundreds of kg
January 1800 11700
February 1600 11300
March 1300 11250
April 1000 10200
May 2200 11100
June 2400 12550
July 2000 12000
August 1800 11400
Sep 2600 12120
Oct 1100 11050
Nov 1200 11350
Dec 1400 11350
1. Draw a scatter diagram of the cost data for the material handling department.
2. Fit a cost line to the diagram.
3. Estimate variable and fixed components of the dpt cost behavior pattern using the cost line.
4. Specify and equation to express the department cost behavior.
5. Estimate material handling department cost behavior using the high low method.
6. Explain why the cost estimates developed in 4 and 5 differ.
7. Predict company's material handling cost for a month when 2250 units of activity are recorded.
8. Construct excel spreadsheet to perform a least squares regression Estimate variable and fixed cost components in the company's material handling dpt costs.