is the new manager of the materials storeroom for
Parr
Manufacturing.
Mary
has been asked to estimate future monthly purchase costs forpart? #696, used in two of
Parr?'s
products.
Mary
has purchase cost and quantity data for the past 9 months as?follows:
Month
Cost of Purchase
Quantity Purchased
January
$12,675
2,720 parts
February
12,110
2,820
March
17,426
4,095
April
15,825
3,724
May
13,025
2,912
June
14,022
3,321
July
15,290
3,688
August
10,094
2,262
September
14,970
3,552
Estimated monthly purchases for this part based on expecteddemand of the two products for the rest of the year are as?follows:
Month | Purchase Quantity Expected |
October | 3,310 parts |
|---|
November | 3,750 |
|---|
December | 3,040 |
|---|
1. | The computer in Mary?'s office is? down, andMary has been asked to immediately provide an equation to estimate thefuture purchase cost for part? #696.Mary grabs a calculator and uses the? high-low method to estimate a costequation. What equation does she? get? |
2. | Using the equation from requirement? 1, calculate the futureexpected purchase costs for each of the last 3 months of theyear. |
3. | After a few hours Mary?'s computer is fixed.Mary uses the first 9 months of data and regression analysis to estimatethe relationship between the quantity purchased and purchase costsof part? #696. The regression lineMary obtains is as? follows:?????y? =$1,945.9 ?+3.71X Evaluate the regression line using the criteria of economic?plausibility, goodness of? fit, and significance of the independentvariable. Compare the regression equation to the equation based onthe? high-low method. Which is a better? fit? Why? |
4. | Use the regression results to calculate the expected purchasecosts for? October, November, and December. Compare the expectedpurchase costs to the expected purchase costs calculated using the?high-low method in requirement 2. Comment on your results. |
