Separating Fixed and Variable Costs, Service Setting A company has identified the following data with respect to a critical activity in its manufacturing process. Month Cost ($) Activity January 101,000 1,600 February 102,000 1,700 March 118,000 1,900 April 112,150 1,800 May 158,750 2,600 June 167,650 2,750 July 142,650 2,300 August 139,150 2,250 September 129,150 2,100 October 120,025 1,950 November 132,700 2,150 December 113,850 1,850 January 115,150 1,850 February 122,350 2,000 March 133,150 2,175 April 143,250 2,340 May 175,600 2,850 June 181,700 2,950 July 190,365 3,125 August 196,400 3,225 September 181,350 2,950 October 171,550 2,650 November 179,550 2,750 December 164,350 2,450 Management wants to ensure that it has a thorough understanding of how costs will behave in the future. Required: 1. Prepare a scattergraph based on these data. Plot cost on the vertical axis and number of activities on the horizontal axis. a. b. c. d. The correct answer is: 2. Identify the three outliers on the scattergraph. 3. Compute the cost formula using the method of least squares. Using the regression cost formula, what is the predicted cost for a month with 2,000 activities? $fill in the blank 3

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

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Section4.6: Applications And The Perron-frobenius Theorem

Problem 22EQ

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Separating Fixed and Variable Costs, Service Setting

A company has identified the following data with respect to a critical activity in its manufacturing process.

Month	Cost ($)	Activity
January	101,000	1,600
February	102,000	1,700
March	118,000	1,900
April	112,150	1,800
May	158,750	2,600
June	167,650	2,750
July	142,650	2,300
August	139,150	2,250
September	129,150	2,100
October	120,025	1,950
November	132,700	2,150
December	113,850	1,850
January	115,150	1,850
February	122,350	2,000
March	133,150	2,175
April	143,250	2,340
May	175,600	2,850
June	181,700	2,950
July	190,365	3,125
August	196,400	3,225
September	181,350	2,950
October	171,550	2,650
November	179,550	2,750
December	164,350	2,450

Management wants to ensure that it has a thorough understanding of how costs will behave in the future.

Required:

1. Prepare a scattergraph based on these data. Plot cost on the vertical axis and number of activities on the horizontal axis.

a.
b.
c.
d.

The correct answer is:

2. Identify the three outliers on the scattergraph.

3. Compute the cost formula using the method of least squares. Using the regression cost formula, what is the predicted cost for a month with 2,000 activities?
$fill in the blank 3

4. Recompute the least squares analysis after removing the outliers identified in Requirement 2.
$fill in the blank 4

5. Comment on the differences in the two regression analyses.

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