Question

Odessa, Inc., manufactures one model of computer desk. The following data are available regarding units shipped and total shipping costs:

Month	Number of Units Shipped	Total Shipping Cost
January	40	$2,950
February	75	3,650
March	25	2,250
April	35	1,850
May	30	2,300
June	55	3,250
July	50	3,000

Required:
1. Prepare a scattergraph of Odessa’s shipping cost and draw the line you believe best fits the data.



3. Using the high-low method, calculate Odessa’s total fixed shipping costs and variable shipping cost per unit.



4. Perform a least-squares regression analysis on Odessa’s data. (Use Microsoft Excel or a statistical package to find the coefficients using least-squares regression. Round your answers to 2 decimal places.)



5. Using the regression output, create a linear equation (y = a + bx ) for estimating Odessa’s shipping costs.

Answer 1

ANSWER:-

3. High low method:

Variable cost per unit = (y2-y1)/(x2-x1)

y2 = 3650, y1 = 2250, x2 = 75 and x1 = 25

Thus variable cost per unit = (3650-2250)/(75-25)

= 1400/50

= $28

Fixed cost = y2 - 28*(x2) = 3650 - (28*75) =3650-2100= $1,550

Fixed cost =$1550

Fixed cost	1550
Variable cost per unit	28

4. Using excel the following result is obtained:

	x (no. of units shipped)	y (shipping cost)	xy	x^2
	40	2950	118000	1600
	75	3650	273750	5625
	25	2250	56250	625
	35	1850	64750	1225
	30	2300	69000	900
	55	3250	178750	3025
	50	3000	150000	2500
Total	310	19250	910500	15500

Thus x variable = [n*(sum of x*y) - (sum of x*sum of y)]/[7*(sum of x^2) - (sum of x)^2]

= [(7*910500) - (310*19250)]/[(7*15500) - (310^2)]

=[(6373500)-(5967500)]/[(108500-96100)]

= 406000/12400

=32.741

Intercept = (sum of y - 31.84211*sum of x)/7

= (19250-32.741*310)/7

= 1300.041

Intercept	1300.041
X variable	32.741

5. Total shipping cost = 1300.041+32.741*no. of units shipped