E2-24. Selecting a Basis for Predicting Shipping Expenses (Requires Computer Spreadsheet*)

Penn Company assembles and sells computer boards in western Pennsylvania. In an effort to im-

prove the planning and control of shipping expenses, management is trying to determine which of

three variablesunits shipped, weight shipped, or sales value of units shippedhas the closest

relationship with shipping expenses. The following information is available:

Month	Units Shipped	Weight Shipped (lbs)	Sales value of Units Shipped	Shipping Expenses
May	3,000	6,200	$100,000	$5,600
June	5,000	8,000	110,000	7,700
July	4,000	8,100	80,000	6,500
August	7,000	10,000	114,000	10,400
September	6,000	7,000	140,000	8,600
October	4,500	8,000	160,000	8,200

Required

a. With the aid of a spreadsheet program, determine whether units shipped, weight shipped, or

sales value of units shipped has the closest relationship with shipping expenses.

b. Using the independent variable that appears to have the closest relationship to shipping ex-

penses, develop a cost-estimating equation for total monthly shipping expenses.

c. Use the equation developed in requirement (b) to predict total shipping expenses in a month

when 5,000 units, weighing 7,000 lbs., with a total sales value of $114,000 are shipped.