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# Applying the Regression Model

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1. During its first year of operations, ABC Company paid \$23,000 for direct materials and \$18,500 for production workers' wages. Indirect manufacturing costs on the production facilities amounted to \$16,500 while general, selling, and administrative expenses totaled \$3,000. The company produced 16,000 units and sold 14,000 units at a price of \$8.50 a unit.

What is the average cost per unit manufactured?

2. The following information is for a product manufactured and sold by XY company

Sales price per unit, \$35
Variable cost per unit, \$20
Total fixed costs, \$300,000
Last year, Rivera earned a profit of \$30,000.
Required:
(a) How many units did XY sell last year?

(b) XY's managers are considering decreasing the sales price to \$30 in an effort to increase market share. Also, the company wants a profit of \$80,000. How many units would it have to sell at the lower selling price to achieve this target?

3. The DEF Company makes and sells two products, as follows:

The DEF Company expects to incur annual fixed costs of \$175,000. The relative sales mix of the products is 75% of A and 25% of unit of B.
Required:

1) Determine the total number of units of products (A and B combined) that Pargo must sell to break even.

2) What is the number of units of A and of B that Pargo would expect to sell at the break-even point?
thank you

#### Solution Preview

1. During its first year of operations, ABC Company paid \$23,000 for direct materials and \$18,500 for production workers' wages. Indirect manufacturing costs on the production facilities amounted to \$16,500 while general, selling, and administrative expenses totaled \$3,000. The company produced 16,000 units and sold 14,000 units at a price of \$8.50 a unit.

What is the average cost per unit manufactured?

Cost per unit \$23,000 / 16000 1.44 each
Each labor 18,500 / 16,000 1.16 each labor
indirect 16,500 / 16,000 1.03 each
Admin 3,000 / 16,000 .19 each

\$61,000 / \$16,000 = \$3.82 average cost