Shafer Company has gathered data on its overhead activities and associated costs for the past 10 months. Theodore, a member of the controller’s department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows:

Required:
1. Examine the table of Shafer’s monthly data given in the problem. Based on your examination of this table, does the relationship appear to be linear?
2. Prepare a scattergraph based on the 10 months of data. Based on your examination of this scattergraph, does the relationship appear to be linear? Briefly comment on whether it was easier to assess the linearity of the relationship by examining the table or the scattergraph plot.
3. Using the high-low method, prepare a cost formula for the receiving activity. Using this formula, what is the predicted cost of receiving for a month in which 1,450 receiving orders are processed?
4. Prepare a cost formula for the receiving activity for a quarter. Based on this formula, what is the predicted cost of receiving for a quarter in which 4,650 receiving orders are anticipated? Prepare a cost formula for the receiving activity for a year. Based on this formula, what is the predicted cost of receiving for a year in which 18,000 receiving orders are anticipated?
5. Once again examine the table of Shafer’s monthly data and assess whether any month appears to be an outlier. Now examine your scattergraph plot and again assess whether any month appears to be an outlier. Briefly explain how visualizing Shafer’s data in the scattergraph plot affects your ability to detect possible outliers.

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Month 367SAW21 4 5 8 9 10 Receiving Orders 1,000 700 1,500 1,200 1,300 1,100 1,600 1,400 1,700 900 Receiving Cost $18,000 15,000 28,000 17,000 25,000 21,000 29,000 24,000 27,000 16,000