Cost Estimation, Interpretation, and Analysis (Requires Computer Spreadsheet) (LO2, 3)

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

57 Dining Total | Total — Room Kitchen Manufacturing _ Tables Tables ———_=—sCiTables Period © : Costs Produced Produced Produced UMer2 Oil Ofer cier $46,650 250 50 200 Ul Veeunectetere tanita: aes 50,888 Z05 105 100 AUGUS teers rete crete 60,630 285 105 180 September ......... 39,743 210 40 170 Octobertte ree ae 42,120 nS 75 100 Novembeier a2. enc. S220 210 110 100 December.......... 53,018 245 90 Oo January 2011....... 47,325 250 50 200 Febrtlanvierss oes oe 47,235 220 70 150 Marchieerscn ttaaa ce: 44,475 180 80 100 JN Ovals Geshe ences 97,800 315 180 135 WAVER ates crys costae: 59,933 280 105 175 AUS. pea Se nee ceo, 52,043 255 75 180 die bias eels ee 55,380 235 110 125 AUQUS Upstate ste aca snare te 46,223 195 85 110 September ......... 60,435 260 120 140 OCtODeR ke ancicktes as 53,708 250 90 160 NOVelmDEhiaeererescnl ts 57,600 270 100 170 Decembeirac steed ac 37,650 165 60 105 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 highlow 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.

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