(p. 218 and 223.)
Shortly after being hired as an analyst with Hudson Rentals, which is located in eastern Quebec, Luis Gomez was asked to prepare a report that focused on the company's order processing costs-a cost driven largely by the number of rental invoices written. Luis knew that he could use several different tools to analyze cost behaviour, including scatter diagrams, least-squares regression, and the high-low method. In addition, he knew that he could present the results of his analysis in the form of algebraic equations. Those equations follow.
Scatter diagram: OP = $56,000 + $6.80RI
Least-squares regression: OP = $59,000 + $6.75RI
High-low method: OP = $53,500 + $7.25RI
where: OP = total order processing costs and RI = number of rental invoices written
Luis had analyzed data over the past 12 months and built equations based on these data, purposely including the slowest month of the year and the busiest month so that things would "tend to even out." He observed that February was especially slow because of a paralyzing blizzard across the entire province, one that forced the company to close for four days.
Required:
A. Will scatter diagrams, least-squares regression, and the high-low method normally result in the same equation? Why?
B. Assuming the use of least-squares regression, explain what the $59,000 and $6.75 figures represent.
C. Assuming the use of a scatter diagram, predict the order processing cost of an upcoming month when Hudson expects to write 2,500 rental invoices.
D. Did Luiserr in constructing the equations on data of the past 12 months? Briefly discuss. If "yes," determine which of the three tools is likely to be affected the most and explain why.

Question

Quizplus · Accepted Answer

The Answer of (p. 218 and 223.)
Shortly after being hired as an analyst with Hudson Rentals, which is located in eastern Quebec, Luis Gomez was asked to prepare a report that focused on the company's order processing costs-a cost driven largely by the number of rental invoices written. Luis knew that he could use several different tools to analyze cost behaviour, including scatter diagrams, least-squares regression, and the high-low method. In addition, he knew that he could present the results of his analysis in the form of algebraic equations. Those equations follow.
Scatter diagram: OP = $56,000 + $6.80RI
Least-squares regression: OP = $59,000 + $6.75RI
High-low method: OP = $53,500 + $7.25RI
where: OP = total order processing costs and RI = number of rental invoices written
Luis had analyzed data over the past 12 months and built equations based on these data, purposely including the slowest month of the year and the busiest month so that things would "tend to even out." He observed that February was especially slow because of a paralyzing blizzard across the entire province, one that forced the company to close for four days.
Required:
A. Will scatter diagrams, least-squares regression, and the high-low method normally result in the same equation? Why?
B. Assuming the use of least-squares regression, explain what the $59,000 and $6.75 figures represent.
C. Assuming the use of a scatter diagram, predict the order processing cost of an upcoming month when Hudson expects to write 2,500 rental invoices.
D. Did Luiserr in constructing the equations on data of the past 12 months? Briefly discuss. If "yes," determine which of the three tools is likely to be affected the most and explain why.

(P. 218 and 223.)