Question

A company has the following historic pattern of total manufacturing costs versus total number of products produced:
MONTH	UNITS	TOTAL COSTS
	PRODUCED
January	12,500	$430,000
February	17,000	$490,000
March	19,000	$512,000
April	10,000	$400,000
May	14,000	$434,000
June	9,000	$360,000
July	20,000	$550,000
August	21,000	$525,000
September	24,000	$605,000
October	23,000	$589,000
November	28,000	$702,000
December	18,000	$496,000

2) If I manufacture 35,000 units this month, what are my projected total costs? (10 POINTS) Total Costs =

Answer 1

First, we need to determine the variable cost per unit, and the monthly fixed costs.

This is done using Regression analysis in Excel.

The X-variable (independent) is the units produced, and the Y-variable (dependent) is the total cost.

By running the regression analysis, we determine that :

intercept (fixed costs per month) = $214,098.09

variable cost per unit = $16.35

If 35,000 units are manufactured:

total cost = fixed costs + (number of units * variable cost per unit)

total cost = $214,098.09 + (35,000 * $16.35)

total cost = $786,413