Question - 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 Order Order Processing Costs
1 3,000 $82,700
2 1,500 50,375
3 4,400 120,700
4 2,800 81,900
5 2,300 69,775
6 1,200 43,100
7 2,000 62,500
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 )?