Cost Estimation, High-Low Method, Regression Analysis DVD Express is a large manufacturer of affordable DVD players. Management recently became aware of rising costs resulting from returns of malfunctioning products. As a starting point for further analysis, Bridget Forrester, the controller, wants to test different forecasting methods and then use the best one to forecast quarterly expenses for 2010. The relevant data for the previous three years follows:
2007 Quarter | Return Expenses | 2008 Quarter | Return Expenses | 2009 Quarter | Return Expenses |
1 | $15,000 | 1 | $16,200 | 1 | $16,600 |
2 | 17,500 | 2 | 17,800 | 2 | 18,100 |
3 | 18,500 | 3 | 18,800 | 3 | 19,000 |
4 | 18,600 | 4 | 17,700 | 4 | 19,200 |
The result of a simple regression analysis using all 12 data points yielded an intercept of $16,559.09 and a coefficient for the independent variable of $183.22. (R-squared = .27, t = 1.94, SE = 1128).
Required
1. Calculate the quarterly forecast for 2010 using the high-low method and regression analyses. Recommend which method Bridget should use and explain why.
2. How does your analysis in requirement 1 change if DVD Express manufactures its products in multiple global production facilities to serve the global market?
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