Regression analysis is commonly used to estimate costs. However, the usefulness of the results depends upon the quality of the data.

Fletcher Inc. is a local delivery company. The employees handle deliveries for a variety of companies that have developed apps that allow customers to place orders for food, beverages, packages, etc. The controller of Fletcher would like to come up with an estimate of the cost behavior for the delivery costs. Fifteen months of data were collected, and the data appear below.

Using the high-low method, the controller did a quick calculation and estimated the variable and fixed portions of the delivery costs. A new employee in the accounting department, however, suggested that regression would give a much better estimate of the costs.

Required

1. Using the given data, determine the estimated cost equation for delivery costs using the high-low method.

2. Using the data available, determine the estimated cost equation for the delivery costs using regression.

3. Graph the data to determine if any adjustments should be made to the regression analysis done in requirement 2.

4. Recompute the estimated cost equation for the delivery costs after making any adjustments to the data as a result of your analysis in requirement 3. What can you conclude about the various cost equations?

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Number of Deliverles Observation Delivery Costs $148,620 11,540 12,180 16,560 11,685 16,685 14,875 13,010 13,010 15,555 11,970 150,980 3 199,200 143,100 4 203,695 183,065 156,390 193,440 189,330 151,200 11 158,445 12,630 15,300 14,580 11,980 13,000 188,085 12 13 182,320 14 144,520 15 155,680