NAME: Darvy Company is developing a cost formula for its packing activity. Discussion with workers in the
packing department has revealed that packing costs may be associated with the number of customer
orders, the order weight in pounds, and the relative fragility of the items (more fragile items must be
specially wrapped). Data for the past 20 months have been gathered:
Packing
Costs
$ 45,000
58,000
39,000
35,600
90,000
126,000
90,600
63,000
79,000
155,000
450,000
640,000
41,000
54,000
58,000
58,090
80,110
123,000
108,000
76,000 Month
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 Number of
Orders
11,200
14,000
10,500
9,000
21,000
31,000
20,000
15,000
16,000
40,000
113,500
150,000
10,000
14,000
15,000
14,500
18,000
30,000
27,000
18,000 Weight of
Orders in Lbs.
24,640
31,220
18,000
19,350
46,200
64,000
60,000
40,000
59,000
88,000
249,700
390,000
23,000
29,400
30,000
31,900
50,000
75,000
63,450
41,400 Number of
Fragile Items
1,120
1,400
1,000
850
4,000
5,500
1,800
750
1,500
2,500
11,800
14,000
900
890
1,500
1,340
3,000
2,000
1,900
1,430 1) Assume Number of Orders is the cost driver, estimate the cost equation using:
a. High-Low Method:
b. Prepare a scatter graph, identify outliers (if any), TRIM THE DATA, and re-estimate the cost
equation using the High/Low Method: ____________________________________(1) c. Use Simple Regression Analysis (TRIMMED DATA):
i. (2) Document the goodness of fit (R-square): ii. How well does the independent variable explain the variation in the dependent variable?
Circle one: Excellent Very Good Good O.K. Poor iii. State the Independent variable by name
iv. Can we rely on ALL the coefficient values? Why or Why Not? _________ 1 2 2) Assume Number of Fragile Items is the cost driver, estimate the cost equation using:
a. High-Low Method:
b. Prepare a scattergraph, identify outliers (if any), TRIM THE DATA, and re-estimate the cost
equation using the High/Low Method: _____________________________________(3) c. Use Simple Regression Analysis (TRIMMED DATA):
i. (4) Document the goodness of fit (R-square): ii. How well does the independent variable explain the variation in the dependent variable?
Circle one: Excellent Very Good Good O.K. Poor iii. State the Independent variable by name
iv. Can we rely on ALL the coefficient values? Why or Why Not? _________ 3) Estimate the cost equation using MULTIPLE REGRESSION ANALYSIS and write it below:
NOTE: Use the trimmed data set.
a. Multiple Regression Analysis
(5)
i. Document the goodness of fit (Adjusted R-square): ii. How well does the independent variable explain the variation in the dependent variable?
Circle one: Excellent Very Good Good O.K. Poor iii. State the Independent variables
iv. Can we rely on ALL the coefficient values? Why or Why Not? _________ 4) Given the five cost functions estimated above (#1 through #5), compute the following:
a. Assume management estimates that 26,000 orders, 57,000 lbs. of weight, and 900 fragile
items will be incurred during the next month. Estimate total packing costs using each of the 5
cost functions?
(High/Low - Orders): (High/Low-Fragile): (Simple - Orders): (Simple Fragile):
(Multiple Reg’n): 5) Based on your analysis, which cost estimation equation would you suggest that CC employ to
estimate its Packaging Costs? Why? Provide a SOLID RECOMMENDATION. 3 4

 

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