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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Chapter 10 Solutions
EBK HORNGREN'S COST ACCOUNTING
Additional Business Textbook Solutions
Financial Accounting, Student Value Edition (4th Edition)
Managerial Accounting (4th Edition)
Financial Accounting (12th Edition) (What's New in Accounting)
Financial Accounting, Student Value Edition (5th Edition)
Horngren's Accounting (11th Edition)
Principles of Accounting Volume 2
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Now create a scatter chart with months since last service on the x-axis and repair time in hours on the y-axis for which the points representing electrical and mechanical repairs are shown in different shapes and/or colors. Create a similar scatter chart of months since last service and repair time in hours for which the points representing repairs by Bob Jones and Donna Newton are shown in different shapes and/or colors. Do these charts and the results of your residual analysis suggest the same potential modifications to your simple linear regression model? Create a new dummy variable that is equal to zero if the type of repair is mechanical and one if the type of repair is electrical. Develop the multiple regression equation to predict repair time, given the number of months since the last maintenance service and the type of repair. What are the interpretations of the estimated regression parameters? What does the coefficient of determination tell you about this model? Create a new dummy variable that is equal to zero if the repairperson is Bob Jones and one if the repairperson is Donna Newton. Develop the multiple regression equation to predict repair time, given the number of months since the last maintenance service and the repairperson. What are the interpretations of the estimated regression parameters? What does the coefficient of determination tell you about this model? Develop the multiple regression equation to predict repair time, given the number of months since the last maintenance service, the type of repair, and the repairperson. What are the interpretations of the estimated regression parameters? What does the coefficient of determination tell you about this model? Which of these models would you use? Why?arrow_forward
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