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Identify the number of client number and administrative costs for each month within relevant range

Draw a scatter diagram of the administrative cost and client number from January to December as shown above.

A. Visually fit a semi-variable cost line to the plotted data in part A above. What are the fixed and variable costs? Express the cost behavior in formula form Y = a + bX correct to two decimal places.

B. Identify the number of client number and administrative costs, for each month within the relevant range.

C. Use the high-low method to estimate the behavior of CWT’s administrative costs based on the client load within the relevant range. Express the cost behavior in formula form Y = a + bX correct to two decimal places.

D. Construct an Excel spreadsheet and use Excel commands to perform a least-square regression and estimate the administrative cost behavior within the relevant range. Express the cost behavior in formula form Y= a + bX correct to two decimal places. Compute and interpret the R2 value for the expression in NOT more than 50 words.

E. Predict the administrative costs for a month when there are 80 clients. Use the cost equations, high-low method in Part D and least-square regression in Part E to make the predication. Which prediction would you prefer to use? Why? Justify your answer of NOT more than 100 words.

F. How confident should Peter be about the three cost models (the scatter diagram and a visual fit semi-variable cost line, high-low method and least-square regression within a relevant range)? Explain your answer of NOT more than 150 words.

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