Question

Lacy DallasLacy Dallas

is examining​ customer-service costs in the southern region of

CabotCabot

Products.

CabotCabot

Products has more than 200 separate electrical products that are sold with a​ 6-month guarantee of full repair or replacement with a new product. When a product is returned by a​ customer, a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent​ 8-week period are as​ follows

Week	Customer-Service Department Costs			Number of Service Reports
1		$13,700			220
2		20,000			290
3		12,800			140
4		18,800			395
5		14,200			285
6		22,100			440
7		16,500			330
8		21,200			320

1.	Plot the relationship between​ customer-service costs and number of service reports. Is the relationship economically​ plausible?
2.	Use the​ high-low method to compute the cost​ function, relating​ customer-service costs to the number of service reports.
3.	What​ variables, in addition to number of service​ reports, might be cost drivers of weekly​customer-service costs of CabotCabot ​Products?

Requirement 1. Plot the relationship between​ customer-service costs and number of service reports. Is the relationship economically​ plausible?

Begin by

plotting the relationship

between the​ customer-service costs and the number of service reports. ​(Enlarge the graph to maximum size and use the point tool button displayed to draw the​ graph.)

050100150200250300350400450500$10,000$23,000Number of service reportsCustomer-service department costs

interactive graphClick to
enlarge
graph

The relationship between​ customer-service costs and the number of service reports

▼

economically plausible.

Requirement 2. Use the​ high-low method to compute the cost​ function, relating​ customer-service costs to the number of service reports.

=

+

Requirement 3. What​ variables, in addition to number of service​ reports, might be cost drivers of weekly​ customer-service costs of

CabotCabot

​Products?

Select two variables that might be cost drivers of weekly​ customer-service costs of

CabotCabot

Products.

Answer 1

Number of Service Reports Customer-Service Department Costs Week 21 220 13700 1 22 290 20000 2 23 140 12800 3 24 395 18800 4 25 285 14200 5 26 440 22100 6 27 330 16500 28 320 21200 8 29 30 31 32 Number of Service Reports 33 34 500 35 450 36 400 37 350 38 300 Number of Service 39 250 Reports 40 200 41 150 42 100 43 50 44 0 25000 20000 10000 15000 5000 0 45

48 There is a positive relationship between the number of service reports and the customer -service department costs. This relationship is economically plausible. 49 50 51 Requirement 2. Use the high-low method to compute the cost function, relating customer-service costs to the number of service reports. 52 High Low Method Difference in Customer service Department Cost Difference In Number of Service Reports 53 54 55 22100 12800 56 440 140 57 58 9.300 59 300 60 61 62 31.00 Per service report Variable Cost component 63 64 65

Determine the fixed cost component using the high-low method 66 67 68 Number of service reports 69 440 140 Total Cost 70 22,100 12.800 Less Variable component (440*31) Fixed component 4,340 (140*31) 13,640 71 72 8,460 8,460 73 Customer Service Department Costs $8,460+$31 *Number of Service Reports 74 75 76 Requirement 3. What variables, in addition to number of service reports, might be cost drivers of weekly customer-service costs of 77 78 1) 79 2) Number of products replaced with a new product Number of products repaired 80