GoldsteinGoldstein

Corporation manufactures a drink bottle, model CL24. During

20172017,

GoldsteinGoldstein

produced

240 comma 000240,000

bottles at a total cost of

$ 1 comma 080 comma 000$1,080,000.

SealySealy

Corporation has offered to supply as many bottles as

GoldsteinGoldstein

wants at a cost of

$ 4.40$4.40

per bottle.

GoldsteinGoldstein

anticipates needing

254 comma 000254,000

bottles each year for the next few years.

1.

a.

What is the average cost of manufacturing a drink bottle in

20172017?

How does it compare to

SealySealy's

offer?

b.

Can

GoldsteinGoldstein

use the answer in requirement 1a to determine the cost of manufacturing

254 comma 000254,000

drink bottles? Explain.

2.

GoldsteinGoldstein's

cost analyst uses annual data from past years to estimate the following regression equation with total manufacturing costs of the drink bottle as the dependent variable and drink bottles produced as the independent variable:

y =

$ 437 comma 000$437,000

+

$ 3.00$3.00X

During the years used to estimate the regression equation, the production of drink bottles varied from

228 comma 000228,000

to

264 comma 000264,000.

Using this equation, estimate how much it would cost

GoldsteinGoldstein

to manufacture

254 comma 000254,000

drink bottles. How much more or less costly is it to manufacture the bottles rather than to acquire them from

SealySealy?

3.

What other information would you need to be confident that the equation in requirement 2 accurately predicts the cost of manufacturing drink bottles?

Requirement 1a. What is the average cost of manufacturing a drink bottle in

20172017?

How does it compare to

SealySealy's

offer?

The average cost of

$4.50

per bottle is

greater

than Sealy's offer.

Requirement 1b. Can

GoldsteinGoldstein

use the answer in requirement 1a to determine the cost of manufacturing

254 comma 000254,000

drink bottles? Explain.

GoldsteinGoldstein

cannot

take the average manufacturing cost in

20172017

to determine the total cost of manufacturing

254 comma 000254,000

drink bottles. The reason is that

some of the total costs are fixed costs and some are variable costs

.

Requirement 2.

GoldsteinGoldstein's

cost analyst uses annual data from past years to estimate the following regression equation with total manufacturing costs of the drink bottle as the dependent variable and drink bottles produced as the independent variable:

y equals $ 437 comma 000 plus $ 3.00 Upper Xy=$437,000+$3.00X.

During the years used to estimate the regression equation, the production of drink bottles varied from

228 comma 000228,000

to

264 comma 000264,000.

Using this equation, estimate how much it would cost

GoldsteinGoldstein

to manufacture

254 comma 000254,000

drink bottles. How much more or less costly is it to manufacture the bottles rather than to acquire them from

SealySealy?

Estimate how much it would cost

GoldsteinGoldstein

to manufacture

254 comma 000254,000

drink bottles, then calculate the cost to purchase the bottles.

Estimated cost to make the bottles	$
Cost to purchase the bottles	$