Waterwise Plumbing Supplies is a wholesaler for a large variety of plumbing supplies. The company’s accountant, Bob Washer, 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. Washer compiled the following data.
1. Draw a scatter diagram of the cost data for the Shipping Department.
2. Estimate the Shipping Departments cost behaviour using the high-low method. Use an equation to express the results of this estimation method.
3. Using the equations estimated in Part 2 predict the Shipping Departments costs for a month when loads totaling 4500 kilograms are moved.
4. Construct an Excel spreadsheet which uses least squares regression analysis to estimate the variable and fixed components for the Shipping Department costs.
5. Based on your spreadsheet write the least squares regression equation for the Departments costs.
6 Using the equation from Part 5, predict the firm’s Shipping Departments costs for a month when loads totaling 4500 kilograms are moved.
7. Why do these cost predictions estimated using the high-low and regression methods differ? Which method do you recommend? Explain your answer.