Clough Company Is Interested in Establishing the Relationship Between Utility

question 1

Essay

Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
$\begin{array}{llll}&&\text { Utility } \\\text { Month } & \text { Machine Hours } & \text { Costs }\\\text { January } & 3,250& \$ 2,080 \\\text { February } & 3,77 0 & 25,200 \\\text { March } & 2,470 & 16,200 \\\text { April } & 4,030 & 27,600 \\\text { May } & 4,940 & 33,900 \\\text { June } & 4,290 & 26,400 \\\text { July } & 5,330 & 29,700 \\\text { August } & 4,550 & 27,300 \\\text { September } & 2,600 & 18,600 \\\text { October } & 4,810 & 31,200 \\\text { November } & 6,110 & 37,200 \\\text { December } & 5,460& 33,300\end{array}$


Required:
(a.) What is the equation for utility costs using the high-low method?
(b.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.

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Definitions:

Forecast Error

A measurement of the discrepancy between predicted values and actual outcomes in demand forecasting.

Expected Overstock

The anticipated excess quantity of inventory that exceeds the demand.

Optimal Level

The most advantageous point or degree of something for a specific purpose or outcome.

Maximize Profits

The strategy or efforts undertaken by a business to increase its income to the highest possible level.