Problem:
On November 15, 2009, Sandra Cook, a newly hired cost analyst at Demgren Company, was asked to predict overhead costs for the company's operations in 2010 when 510 unites are expected to be produced. She collected the following quarterly data:
Quarter Production In Units Overhead Costs
1/06 76 $721
2/06 79 715
3/06 71 649
4/06 136 1,131
1/07 125 1,001
2/07 128 1,111
3/07 125 1,119
4/07 133 1,042
1/08 124 997
2/08 129 1,066
3/08 115 996
4/08 84 957
1/09 84 835
2/09 122 1,050
3/09 90 991
1) Using the high-low method to estimate costs, prepare a prediction of overhead costs for 2010
2) Sandy ran a regressing analysis using the data she collected. The result was
Y=$355 +$ 5.77 X
Using this cost function, predict overhead costs for 2010
3) Which prediction do you prefer? Why?