Cost Estimation, Interpretation, and Analysis (Requires Computer Spreadsheet")

Brady Table Company produces two styles of modern dining room and kitchen tables. Presented is monthly information on production volume and manufacturing costs:

Required

a. Use the high-low method to develop a cost-estimating equation for total manufacturing costs. Interpret the meaning of the “fixed” costs and comment on the results.

b. Use the chart feature of a spreadsheet to develop a scatter graph of total manufacturing costs and total units produced. Use the graph to identify any unusual observations.

c. Excluding any unusual observations, use the high-low method to develop a cost-estimating equation for total manufacturing costs. Comment on the results, comparing them with the results in requirement (a).

d. Use simple regression analysis to develop a cost-estimating equation for total manufacturing costs.
What advantages does simple regression analysis have in comparison with the high-low method of cost estimation? Why must analysts carefully evaluate the data used in simple regression analysis?

e. Acustomer has offered to purchase 50 dining room tables for $220 per table. Management has asked your advice regarding the desirability of accepting the offer. What advice do you have for management? Additional analysis is required.

Total Manufacturing Total Tables Costs Produced Dining Room Tables Produced Kitchen Tables Produced June 2017. $ 69,975 375 75 300 July. 76,332 308 158 150 August 90,945 428 158 270 September 59,615 315 60 255 October 63,180 263 113 150 November. 78,863 315 165 150 December. 79,527 368 135 233 January 2018 70,988 375 75 300 February. 70,853 330 105 225 March. 66,713 270 120 150 April 146,700 473 270 203. May. 89,900 420 158 263 June 78,065 383 113 270 July. 83,070 353 165 188 August 69,335 293 128 165 September 90,653 390 180 210 October 80,562 375 135 240 November. 86,400 405 150 255 December.. 56,475 248 90 158