Question: Melissa Crupp is the new manager of
Melissa Crupp is the new manager of the materials storeroom for Canton Manufacturing. Melissa has been asked to estimate future monthly purchase costs for part #4599, used in two of Canton’s products. Melissa has purchase cost and quantity data for the past nine months as follows: 
Estimated monthly purchases for this part based on expected demand of the two products for the rest of the year are as follows: 
Required: 1. The computer in Melissa’s office is down and Melissa has been asked to immediately provide an equation to estimate the future purchase cost for part # 4599. Melissa grabs a calculator and uses the highlow method to estimate a cost equation. What equation does she get? 2. Using the equation from requirement 1, calculate the future expected purchase costs for each of the last three months of the year. 3. After a few hours Melissa’s computer is fixed. Melissa uses the first nine months of data and regression analysis to estimate the relationship between the quantity purchased and purchase costs of part#4599. The regression line Melissa obtains is as follows: Evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance of the independent variable. Compare the regression equation to the equation based on the high-low method. Which is a better fit? Why? 4. Use the regression results to calculate the expected purchase costs for October, November, and December. Compare the expected purchase costs to the expected purchase costs calculated using the high-low method in requirement 2. Comment on your results.
Transcribed Image Text:
Quantity Purchased 2,250 parts Month Cost of Purchase $10,390 January February 10,550 2,350 March 14,400 3,390 April May 13,180 3,120 10,970 2,490 June 11,580 2,680 July August September 12,690 3,030 8,560 1,930 12,450 2,960 Month Purchase Quantity Expected October 2,800 parts November 3,100 December 2,500
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