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