Martha's Vineyard Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company's controller, Mathew Knight, has recently completed a cost study of the firm's material-handling department in which he used work measurement to quantify the department's activity. The control factor unit used in the work-measurement study was hundreds of pounds of equipment unloaded or loaded at the company's loading dock. Knight compiled the following data.

Required:
1. Draw a scatter diagram of the cost data for the material-handling department.
2. Visually fit a cost line to the scatter diagram.
3. Estimate the variable and fixed components of the department's cost behavior pattern using the visually fit cost line.
4. Using your estimate from requirement (3), specify an equation to express the department's cost behavior.
5. Estimate the material-handling department's cost behavior using the high-low method. Use an equation to express the results of this estimation method.
6. Write a brief memo to the company's president explaining why the cost estimates developed in requirements (4) and (5) differ.
7. Predict the company's material-handling costs for a month when 2,300 units of activity are recorded. Use each of your cost equations to make the prediction. Which prediction would you prefer to use? Why?

Transcribed Image Text:

Units of Activity (hundreds of pounds of equipment loaded or unloaded) Material-Handling Department Costs $11,350 11,350 11,050 12,120 11,400 12,000 12,550 11,100 10,200 11,250 11,300 11,700 Month 1,400 1,200 1,100 2,600 1,800 2,000 2,400 March May July 1,000 1,300 1,600 1,800