(Note: Instructors who wish to cover all three cost-estimation methods with the same data...

(Note: Instructors who wish to cover all three cost-estimation methods with the same data set may assign this problem in conjunction with the next one.)Martha’s Vineyard Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company’s controller, Mathew Knight, has recently completed a cost study of the firm’s material-handling department in which he used work measurement to quantify the department’s activity. The control factor unit used in the work-measurement study was hundreds of pounds of equipment unloaded or loaded at the company’s loading dock. Knight compiled the following data.

Required:

1. Draw a scatter diagram of the cost data for the material-handling department.

2. Visually fit a cost line to the scatter diagram.

3. Estimate the variable and fixed components of the department’s cost behavior pattern using the visually fi t cost line.

4. Using your estimate from requirement (3), specify an equation to express the department’s cost behavior.

5. Estimate the material-handling department’s cost behavior using the high-low method. Use an equation to express the results of this estimation method.

6. Write a brief memo to the company’s president explaining why the cost estimates developed in requirements (14) and (5) differ.

7. Predict the company’s material-handling costs for a month when 2,300 units of activity are recorded. Use each of your cost equations to make the prediction. Which prediction would you prefer to use? Why?