Scatter Diagrams and High-Low Cost Estimation From April 1 through October 31, Coles County Highway Department hires temporary em- ployees to mow and clean the right-of-way along county roads. Assume that the County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations. Month April May. June July. August September October... Miles Mowed Labor and Cleaned Costs 240 $6,800 305 7,680 325 8,310 275 7,200 220 6,550 200 5,760 75 4,960 REQUIRED a. Use the information from the high- and low-volume months to develop a cost-estimating equa- tion for monthly labor costs. b. Plot the data on a scatter diagram. Hint: In Excel, highlight the data to be included in the chart. Open the insert tab and select the Scatter chart in the Charts group. Using the information from representative high- and low-volume months, use the high-low method to develop a cost- estimating equation for monthly labor costs. c. What factors might have caused the difference in the equations developed for requirements (a) and (b)? d. Adjust the equation developed in requirement (b) to incorporate the effect of an anticipated 5% increase in wages.
Scatter Diagrams and High-Low Cost Estimation From April 1 through October 31, Coles County Highway Department hires temporary em- ployees to mow and clean the right-of-way along county roads. Assume that the County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations. Month April May. June July. August September October... Miles Mowed Labor and Cleaned Costs 240 $6,800 305 7,680 325 8,310 275 7,200 220 6,550 200 5,760 75 4,960 REQUIRED a. Use the information from the high- and low-volume months to develop a cost-estimating equa- tion for monthly labor costs. b. Plot the data on a scatter diagram. Hint: In Excel, highlight the data to be included in the chart. Open the insert tab and select the Scatter chart in the Charts group. Using the information from representative high- and low-volume months, use the high-low method to develop a cost- estimating equation for monthly labor costs. c. What factors might have caused the difference in the equations developed for requirements (a) and (b)? d. Adjust the equation developed in requirement (b) to incorporate the effect of an anticipated 5% increase in wages.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:E14-23. Scatter Diagrams and High-Low Cost Estimation
From April 1 through October 31, Coles County Highway Department hires temporary em-
ployees to mow and clean the right-of-way along county roads. Assume that the County Road
Commissioner has asked you to help her in determining the variable labor cost of mowing and
cleaning a mile of road. The following information is available regarding current-year operations.
Month
April
May.
June
July.
August
September
October.
Miles Mowed
Labor
and Cleaned
Costs
240
$6,800
305
7,680
325
8,310
275
7,200
220
6,550
200
5,760
75
4,960
REQUIRED
a. Use the information from the high- and low-volume months to develop a cost-estimating equa-
tion for monthly labor costs.
b. Plot the data on a scatter diagram. Hint: In Excel, highlight the data to be included in the chart.
Open the insert tab and select the Scatter chart in the Charts group. Using the information
from representative high- and low-volume months, use the high-low method to develop a cost-
estimating equation for monthly labor costs.
c. What factors might have caused the difference in the equations developed for requirements (a) and
(b)?
d. Adjust the equation developed in requirement (b) to incorporate the effect of an anticipated 5%
increase in wages.
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Step 1: Defining the High-low method:
VIEWStep 2: a. Use the information from the high- and low-volume months to develop a cost-estimating equation:
VIEWStep 3: b.Plot the data on a scatter diagram:
VIEWStep 4: d. Adjust the equation developed in req (b) that effect of an anticipated 5% increase in wages:
VIEWStep 5: Adjust the equation developed in (b) to incorporate the effect of an 5% increase in wages:
VIEWStep 6: c.The factors that have caused the difference in equation in a and b
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