Caiman Distribution Partners is the Brazilian distribution company of a U.S. consumer products firm. Inflation in Brazil has made bidding and budgeting difficult for marketing managers trying to penetrate some of the country's rural regions. The company expects to distribute 450,000 cases of products in Brazil next month. The controller has classified operating costs (excluding costs of the distributed product) as follows:

Although overhead costs were related to revenues throughout the company, the experience in Brazil suggested to the managers that they should incorporate information from a published index of Brazilian prices in the distribution sector to forecast overhead in a manner more likely to capture the economics of the business. Following instructions from the corporate offices, the controller's office in Brazil collected the following information for monthly operations from last year:

These data are considered representative for both past and future operations in Brazil.

Required
a. Prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month based on the controller's analysis of accounts.
b. Use the high-low method to prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month.
c. Prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month by using the results of a simple regression of operating costs on cases shipped.
d. Prepare an estimate of operating costs assuming that 450,000 cases will be shipped next month by using the results of a multiple regression of operating costs on cases shipped and the price level. Assume a price level of 145 for next month.
e. Make a recommendation to the managers about the most appropriate estimate given thecircumstances.

Transcribed Image Text:

Account Operating Cost s 350,000 Behavior Supplies... Supervision Truck expense Building leases.. - Utilities Warehouse labor Equipment leases Data processing equipment. . Other All variable 215,000 $150,000 fixed 1,200,000 $190,000 fixed 855,000 $550,000 fixed 215,000 $125,000 fixed 860,000 $140,000 fixed 760,000 $600,000 fixed 945,000 850,000 $400000 fixed All fixed $6,250,000 Month Cases Price Index Operating Costs 1 _.. 345,000 362,000 3358,000 380,000 --. 374,000 395,000 367,000 412,000 398,000 421,000 417,000 432,000 $5,699,139 5,806,638 5,849,905 5,927,617 5,939,135 6,043,364 5,918,496 6,133,868 6,126,130 6,186,625 6,208,799 6,362,255 115 118 122 124 125 128 133 133 132 136 139 10 12