Lacy Dallas is examining customer-service costs in the southern region of Camilla Products. Camilla Products has more than 200 separate electrical products that are sold with a 6-month guarantee of full repair or replacement with a new product. When a product is returned by a customer, a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are as follows:
Week Customer-Service Department Costs Number of Service Reports
1 $13,300 185
2 $20,500 285
3 $12,000 120
4 $18,500 360
5 $14,900 275
6 $21,600 440
7 $16,500 350
8 $21,300 315
Required:
a. Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible?
b. Use the high-low method to compute the cost function relating customer-service costs to the number of service reports.
c. What variables, in addition to number of service reports, might be cost drivers of weekly customer- service costs of Camilla Products?
Answers: 3
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