Estimating a cost function, high-low method. Laurie Daley is examining customer-service costs in the southern region of Capitol Products. Capitol 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 10-week period are

1. Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible?

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 Capitol Products?

Transcribed Image Text:

Customer-Service Department Costs $13,845 Number of Service Reports Week 201 20,624 12,941 276 122 18,452 386 5 14,843 21,890 16,831 21,429 18,267 274 9. 436 321 328 9. 243 10 16,832 161