Month Cost of Purchase Quantity Purchased January February $12,675 13,000 2,710 parts 2,810 March 17,653 4,153 April May 15,825 3,756 13,125 2,912 June 13,814 3,387 July August September 15,300 3,622 10,233 2,298 14,950 3,562 Estimated monthly purchases for this part based on expected demand of the two products for the rest of the year are as follows: Purchase Quantity Expected Month October 3,340 parts November 3,710 December 3,040 1. The computer in May's office is down, and May has been asked to immediately provide an equation to estimate the future purchase cost for part #696. May grabs a calculator and uses the high-low method to estimate a cost equation. What equation does she get? 2. Using the equation from requirement 1, calculate the future expected purchase costs for each of the last 3 months of the year. 3. After a few hours May's computer is fixed. May uses the first 9 months of data and regression analysis to estimate the relationship between the quantity purchased and purchase costs of part #696. The regression line May obtains is as follows: Required y = $2,582.6 + 3.54X Evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance of the independent variable. Compare the regression equation to the equation based on the high-low method. Which is a better fit? Why? 4. Use the regression results to calculate the expected purchase costs for October, November, and De- cember. Compare the expected purchase costs to the expected purchase costs calculated using the high-low method in requirement 2. Comment on your results.

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Chapter1: Financial Statements And Business Decisions
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High-low, regression. May Blackwell is the new manager of the materials storeroom for Clayton Manufacturing. May has been asked to estimate future monthly purchase costs for part #696, used in two of Clayton’s products. May has purchase cost and quantity data for the past 9 months as follows:

Month
Cost of Purchase
Quantity Purchased
January
February
$12,675
13,000
2,710 parts
2,810
March
17,653
4,153
April
May
15,825
3,756
13,125
2,912
June
13,814
3,387
July
August
September
15,300
3,622
10,233
2,298
14,950
3,562
Estimated monthly purchases for this part based on expected demand of the two products for the rest of the
year are as follows:
Purchase Quantity Expected
Month
October
3,340 parts
November
3,710
December
3,040
1. The computer in May's office is down, and May has been asked to immediately provide an equation to
estimate the future purchase cost for part #696. May grabs a calculator and uses the high-low method
to estimate a cost equation. What equation does she get?
2. Using the equation from requirement 1, calculate the future expected purchase costs for each of the
last 3 months of the year.
3. After a few hours May's computer is fixed. May uses the first 9 months of data and regression analysis
to estimate the relationship between the quantity purchased and purchase costs of part #696. The
regression line May obtains is as follows:
Required
y = $2,582.6 + 3.54X
Evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance
of the independent variable. Compare the regression equation to the equation based on the high-low
method. Which is a better fit? Why?
Transcribed Image Text:Month Cost of Purchase Quantity Purchased January February $12,675 13,000 2,710 parts 2,810 March 17,653 4,153 April May 15,825 3,756 13,125 2,912 June 13,814 3,387 July August September 15,300 3,622 10,233 2,298 14,950 3,562 Estimated monthly purchases for this part based on expected demand of the two products for the rest of the year are as follows: Purchase Quantity Expected Month October 3,340 parts November 3,710 December 3,040 1. The computer in May's office is down, and May has been asked to immediately provide an equation to estimate the future purchase cost for part #696. May grabs a calculator and uses the high-low method to estimate a cost equation. What equation does she get? 2. Using the equation from requirement 1, calculate the future expected purchase costs for each of the last 3 months of the year. 3. After a few hours May's computer is fixed. May uses the first 9 months of data and regression analysis to estimate the relationship between the quantity purchased and purchase costs of part #696. The regression line May obtains is as follows: Required y = $2,582.6 + 3.54X Evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance of the independent variable. Compare the regression equation to the equation based on the high-low method. Which is a better fit? Why?
4. Use the regression results to calculate the expected purchase costs for October, November, and De-
cember. Compare the expected purchase costs to the expected purchase costs calculated using the
high-low method in requirement 2. Comment on your results.
Transcribed Image Text:4. Use the regression results to calculate the expected purchase costs for October, November, and De- cember. Compare the expected purchase costs to the expected purchase costs calculated using the high-low method in requirement 2. Comment on your results.
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