Husker Corporation manufac-tures a garden tractor for residential use. Husker currently manufactures the wheel assembly for the tractors. During 2012, Husker made 2,500 wheel assemblies at a total cost of $ 325,000. Axel Corporation has offered to supply as many wheel assemblies as Husker wants at a cost of $ 125 per assembly. Husker anticipates needing 3,000 wheel assemblies each year for the next few years.

1 a. What is the average cost of manufacturing a wheel assembly in 2012? How does it compare to Axel’s offer? b. Can Husker use the answer in requirement 1a to determine the cost of manufacturing 3,000 wheel assemblies? Explain.
2. Husker’s management accountant uses annual data from past years to estimate the following regression equation with total manufacturing costs of the wheel assembly as the dependent variable and wheel assemblies produced as the independent variable:
y = $ 165,000 + $ 65X
During the years used to estimate the regression equation, the production of wheel assemblies varied from 1,800 to 3,500. Using this equation, estimate how much it would cost Husker to manufacture 3,000 wheel assemblies. How much more or less costly is it to manufacture the wheel assemblies rather than to acquire them from Axel?
3. What other information would you need to be confident that the equation in requirement 2 accurately predicts the cost of manufacturing wheel assemblies?

  • CreatedJanuary 15, 2015
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