Question

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 3,000 $ 82,700 1,500 50,375 4,400 120,700 2,800 81,900 2,300 69,775 1,200 43,100 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. If needed, an Excel worksheet is provided in the following link in order to create the scatter diagram: Scatter_Diagram = $ + $

Answer 1

ANSWER:

(a)	High low cost method
	Cost at 4400 orders	120700
	Cost at 1200 orders	43100
	Highest sales orders	4400
	Lowest sales orders	1200
	Variable cost per unit = (120700  -43100)/(4400-1200) =	24.25	Per sales order
	Fixed cost = 120700  - 4400*24.25	14000
(b)	equation Y = A + BX , Y = 14000 + 4400*24.25 per sales order

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