Cost Estimation; High-Low and Regression Methods The Mac Davis Company specializesin the purchase, renovation, and resale of older homes. Mac employs several carpenters and paintersto do the work for him. It is essential for him to have accurate cost estimates so he can determinetotal renovation costs before he purchases a piece of property. If estimated renovation costs plus thepurchase price of a house are higher than the house’s estimated resale value, it is not a worthwhileinvestment.Mac has been using the home’s interior square feet for his exterior paint cost estimations. Recentlyhe decided to include the number of external openings—the total number of doors and windows ina house—as a cost driver. Their cost is significant because they require time-consuming preparatorywork and careful brushwork. The rest of the house usually is painted either by rollers or spray guns,which are relatively efficient ways to apply paint to a large area. Mac has kept careful records of theseexterior painting costs on his last 12 jobs:House Square Feet External Openings Costs1 2,500 13 $2,8102 3,010 15 3,7423 2,800 12 3,1004 2,850 12 3,1505 4,600 19 4,7006 2,700 13 3,2257 2,600 11 2,9208 2,550 11 2,8369 2,600 10 3,24210 3,700 16 4,11211 2,650 13 3,21012 3,550 16 3,965Required1. Using the high-low cost estimation technique and square feet as the independent variable, determinethe cost of painting a 3,300-square-foot house with 14 external openings. Also determine the cost for a2,400-square-foot house with 8 externals openings.2. Repeat requirement 1, but use number of external openings as the independent variable.3. Plot the cost data against square feet and against openings. Which variable is a better cost driver? Why?4. Create a multiple regression model for predicting cost based on openings and square feet. Comment onthe statistical reliability and precision of this model.5. What are the sustainability issues for this company, and what is the role of cost estimation in thisregard?
Cost Estimation; High-Low and Regression Methods The Mac Davis Company specializes
in the purchase, renovation, and resale of older homes. Mac employs several carpenters and painters
to do the work for him. It is essential for him to have accurate cost estimates so he can determine
total renovation costs before he purchases a piece of property. If estimated renovation costs plus the
purchase price of a house are higher than the house’s estimated resale value, it is not a worthwhile
investment.
Mac has been using the home’s interior square feet for his exterior paint cost estimations. Recently
he decided to include the number of external openings—the total number of doors and windows in
a house—as a cost driver. Their cost is significant because they require time-consuming preparatory
work and careful brushwork. The rest of the house usually is painted either by rollers or spray guns,
which are relatively efficient ways to apply paint to a large area. Mac has kept careful records of these
exterior painting costs on his last 12 jobs:
House Square Feet External Openings Costs
1 2,500 13 $2,810
2 3,010 15 3,742
3 2,800 12 3,100
4 2,850 12 3,150
5 4,600 19 4,700
6 2,700 13 3,225
7 2,600 11 2,920
8 2,550 11 2,836
9 2,600 10 3,242
10 3,700 16 4,112
11 2,650 13 3,210
12 3,550 16 3,965
Required
1. Using the high-low cost estimation technique and square feet as the independent variable, determine
the cost of painting a 3,300-square-foot house with 14 external openings. Also determine the cost for a
2,400-square-foot house with 8 externals openings.
2. Repeat requirement 1, but use number of external openings as the independent variable.
3. Plot the cost data against square feet and against openings. Which variable is a better cost driver? Why?
4. Create a multiple regression model for predicting cost based on openings and square feet. Comment on
the statistical reliability and precision of this model.
5. What are the sustainability issues for this company, and what is the role of cost estimation in this
regard?
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