Estimating a cost function, high-low method. Lacy Dallas is examining customer-service costs in the southern region of Camilla Products. Camilla 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: Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible? Use the high-low method to compute the cost function relating customer-service costs to the number of service reports. What variables, in addition to number of service reports, might be cost drivers of weekly customer-service costs of Camilla Products?

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
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Estimating a cost function, high-low method. Lacy Dallas is examining customer-service costs in the southern region of Camilla Products. Camilla 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:

  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 Camilla Products?

Week
Customer-Service Department Costs
Number of Service Reports
1
$13,300
185
2
20,500
285
3
12,000
120
4
18,500
360
275
14,900
21,600
16,500
21,300
6
440
7
350
8
315
Transcribed Image Text:Week Customer-Service Department Costs Number of Service Reports 1 $13,300 185 2 20,500 285 3 12,000 120 4 18,500 360 275 14,900 21,600 16,500 21,300 6 440 7 350 8 315
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