Reference no: EM133440575
Question: Susan Supplies Ltd is a wholesaler for a large variety of plumbing supplies. The company's accountant, Moriss, has recently completed a cost study of the firm's Shipping Department in which he used the kilograms of supplies loaded or unloaded at the company's loading dock to quantify the department's activity. Susan supplies compiled the following data
Month Kilograms of supplies
unloaded or loaded
Shipping
Department costs
January 3 800 $ 23 400
February 3 200 22 600
March 2 600 22 500
April 2 000 20 400
May 4 400 22 200
June 4 800 25 100
July 4 000 24 000
August 3 600 22 800
September 5 200 26 240
October 2 200 22 100
November 2 400 22 700
December 2 800 22 700
Required:
A. Draw a scatter diagram of the cost data for the Shipping Department.
B. Estimate the Shipping Department's cost behaviour using the high-low method. Use an equation to express the results of this estimation method.
C. Using the equations estimated in Part 2 predict the Shipping Department's costs for a month when loads totalling 5500 kilograms are moved.
D. Prepare least squares regression analysis to estimate the variable and fixed components for the Shipping Department costs.
E. Based on your spreadsheet write the least squares regression equation for the Department's costs.
F. Using the equation from Part E, predict the firm's Shipping Department's costs for a month when loads totalling 5500 kilograms are moved.
G. Why do these cost predictions estimated using the high-low and regression methods differ? Which method do you recommend? Explain your answer.