Chapter 2, Problem 6PB

Gadell Farms produces venison sausage that is distributed to grocery stores throughout the Southeast. They have collected this shipping cost data:

1. Prepare a scatter graph of the shipping data. Plot cost on the vertical axis and tons produced on the horizontal axis. Is the relationship between packaging costs and tons produced approximately linear? Draw a straight line through the scatter graph.
2. Using the high-low method, estimate the cost formula for Gadell Farms’ packaging costs.
3. The least-squares regression method was used and the analysis resulted in this cost equation: Y= 1650 + 78.57x. Comment on the accuracy of your high-low method estimation.
4. What would you estimate packaging costs to be if Gadell Farms shipped 10 tons in a single month? Use the cost formula you obtained in part B. Comment on how accurately this is reflected by the scatter graph you constructed.
5. What factors other than number of tons produced do you think could affect Gadell Farm’s packaging expense? Explain.