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MA 14-34. Cost Estimation, Interpretation, and Analysis

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

Please see Ms Excel attachment

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 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 cost. 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 cost. 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 simpler regression analysis?
e. A customer has offered to purchase 5o dining room tables for $180 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.

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Solution Summary

I put the amount in the cells required and put the discussion the provided boxes. The details on how to get these amounts are on the other tabs. Your tutorial is in Excel and includes two high low method computations, one with and one with out the outlier. A graph is shown, including an analysis of the intercept (fixed component). Advantages of regression are mentioned. Two cautions about using regression are given. A recommendation on the customer offer is given.

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I put the amount in the cells required and put the discussion the provided boxes. The details on how to get these ...

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Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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