Brightlite Company uses a special machine to manufacture streetlights. It currently produces 500 streetlights per month at a total cost of $ 68,000. Ergo, Inc., has been pressuring Brightlite Company to purchase as many streetlights as it needs from Ergo at a cost of $ 130 per light.

1. What is the average total cost of manufacturing a streetlight? How does it compare to the cost of purchasing the lights from Ergo? Can Brightlite use the average cost of manufacturing to determine the cost of manu-facturing 600 streetlights? Explain.
2. Brightlite’s management accountant uses annual data from past years when production varied from 500 to 800 streetlights to estimate the following equation with total manufacturing costs of the streetlights as the dependent variable and streetlights produced as the independent variable:
y = $ 23,000 + $ 90X
Using this equation, estimate how much it would cost Brightlite to manufacture 600 streetlights. How much more or less costly would it be to manufacture the lights rather than purchase the streetlights from Ergo?
3. What other information would Brightlite need to be confident that the equation in requirement 2 accurately predicts the cost of manufacturing streetlights?

  • CreatedJanuary 15, 2015
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