Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs. Month Sales Orders Order Processing Costs 1 3,300 $90,970 2 1,650 55,412 3 4,840 132,770
Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs. Month Sales Orders Order Processing Costs 1 3,300 $90,970 2 1,650 55,412 3 4,840 132,770
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
E15-19. 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-
| Month | Sales Orders | Order Processing Costs |
| 1 | 3,300 | $90,970 |
| 2 | 1,650 | 55,412 |
| 3 | 4,840 | 132,770 |
| 4 | 3,080 | 90,090 |
| 5 | 2,530 | 76,752 |
| 6 | 1,320 | 47,410 |
| 7 | 2,200 | 68,750 |
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)?
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Step 1: High-low method:
VIEWStep 2: (a) Develop a cost-estimating equation for monthly order-processing costs using high-low method:
VIEWStep 3: (b) Plot the data on a scatter diagram:
VIEWStep 4: Develop a cost-estimating equation for monthly production costs using high-low method:
VIEWStep 5: (c) List the factors might have caused the difference in the equations developed in (a) and (b):
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