1. Cost Estimation; High-Low and RegressionMethods The Mac Davis Company specializes in the purchase,renovation, and resale of older homes. Mac employs severalcarpenters and painters to do the work for him. It is essential forhim to have accurate cost estimates so he can determine totalrenovation costs before he purchases a piece of property. Ifestimated renovation costs plus the purchase price of a house arehigher than the house’s estimated resale value, it is not aworthwhile investment.
   
   Mac has been using the home’s interior square feet for his exteriorpaint cost estimations. Recently he decided to include the numberof external openings—the total number of doors and windows in ahouse—as a cost driver. Their cost is significant because theyrequire time-consuming preparatory work and careful brushwork. Therest of the house usually is painted either by rollers or sprayguns, which are relatively efficient ways to apply paint to a largearea. Mac has kept careful records of these exterior painting costson 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 Â	3,700	16	4,112
11 Â	2,650	13	3,210
12 Â	3,550	16	3,965

Required

1. Using the high-low cost estimation technique and square feet asthe independent variable, determine the cost of painting a3,300-square-foot house with 14 external openings. Also determinethe cost for a 2,400-square-foot house with 8 externalsopenings.

2. Repeat requirement 1, but use number of external openings as theindependent 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 onopenings and square feet. Comment on the statistical reliabilityand precision of this model.

5. What are the sustainability issues for this company, and what isthe role of cost estimation in this regard?