Chapter 10, Problem 10.28E

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:

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
5	14,900	275
6	21,600	440
7	16,500	350
8	21,300	315

1. 1. Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible?

     Required

1. 2. Use the high-low method to compute the cost function relating customer-service costs to the number of service reports.
2. 3. What variables, in addition to number of service reports, might be cost drivers of weekly customer-service costs of Camilla Products?