GoldsteinGoldstein
Corporation manufactures a drink bottle, model CL24. During
20172017,
GoldsteinGoldstein
produced
240 comma 000240,000
bottles at a total cost of
$ 1 comma 080 comma 000$1,080,000.
SealySealy
Corporation has offered to supply as many bottles as
GoldsteinGoldstein
wants at a cost of
$ 4.40$4.40
per bottle.
GoldsteinGoldstein
anticipates needing
254 comma 000254,000
bottles each year for the next few years.
1.
a.
What is the average cost of manufacturing a drink bottle in
20172017?
How does it compare to
SealySealy's
offer?
b.
Can
GoldsteinGoldstein
use the answer in requirement 1a to determine the cost of manufacturing
254 comma 000254,000
drink bottles? Explain.
2.
GoldsteinGoldstein's
cost analyst uses annual data from past years to estimate the following regression equation with total manufacturing costs of the drink bottle as the dependent variable and drink bottles produced as the independent variable:
y =
$ 437 comma 000$437,000
+
$ 3.00$3.00X
During the years used to estimate the regression equation, the production of drink bottles varied from
228 comma 000228,000
to
264 comma 000264,000.
Using this equation, estimate how much it would cost
GoldsteinGoldstein
to manufacture
254 comma 000254,000
drink bottles. How much more or less costly is it to manufacture the bottles rather than to acquire them from
SealySealy?
3.
What other information would you need to be confident that the equation in requirement 2 accurately predicts the cost of manufacturing drink bottles?
Requirement 1a. What is the average cost of manufacturing a drink bottle in
20172017?
How does it compare to
SealySealy's
offer?
|
The average cost of |
$4.50 |
per bottle is |
greater |
than Sealy's offer. |
Requirement 1b. Can
GoldsteinGoldstein
use the answer in requirement 1a to determine the cost of manufacturing
254 comma 000254,000
drink bottles? Explain.
GoldsteinGoldstein
cannot
take the average manufacturing cost in
20172017
to determine the total cost of manufacturing
254 comma 000254,000
drink bottles. The reason is that
some of the total costs are fixed costs and some are variable costs
.
Requirement 2.
GoldsteinGoldstein's
cost analyst uses annual data from past years to estimate the following regression equation with total manufacturing costs of the drink bottle as the dependent variable and drink bottles produced as the independent variable:
y equals $ 437 comma 000 plus $ 3.00 Upper Xy=$437,000+$3.00X.
During the years used to estimate the regression equation, the production of drink bottles varied from
228 comma 000228,000
to
264 comma 000264,000.
Using this equation, estimate how much it would cost
GoldsteinGoldstein
to manufacture
254 comma 000254,000
drink bottles. How much more or less costly is it to manufacture the bottles rather than to acquire them from
SealySealy?
Estimate how much it would cost
GoldsteinGoldstein
to manufacture
254 comma 000254,000
drink bottles, then calculate the cost to purchase the bottles.
|
Estimated cost to make the bottles |
$ |
|
|
Cost to purchase the bottles |
$ |
1.
Average cost per bottle = $1080000 / 240000 = $4.50 per bottle
Goldstein cannot take the average manufacturing cost in 2017 to determine the total cost of manufacturing 254,000 drink bottles. The reason is that some of the total costs are fixed costs and some are variable costs.
2.
Cost for 254000 bottles = $437000 + 254000 x 3 = $1199000
Cost of Purchase = 254000 x 4.40 = $1117600
It is more costly by $81400 to manufacture the bottles rather than to acquire them from Sealy
3.
It is required to see how closely the best fit line passes
through
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