Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.15 per case, has not had the market success that managers expected and the company is considering dropping Bubbs.

The product-line income statement for the last month follows:

Revenue

$

1,345,180

Costs

Production costs

$

(1,280,451)

Product-line margin

$

64,729

Allowance for tax (@20%)

(12,945.80)

Product-line profit (loss)

$

51,783.20

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on production costs for Bubbs for the past 12 months:

Month

Cases

Production Costs

1

211,000

$1,147,828

2

219,200

1,169,328

3

216,900

1,177,981

4

232,000

1,193,523

5

239,900

1,195,827

6

241,000

1,216,673

7

222,200

1,191,699

8

249,200

1,234,774

9

240,800

1,233,226

10

254,600

1,245,325

11

252,200

1,249,760

12

261,200

1,280,451

Assume that the relevant range of production is between 150,000 and 350,000 cases.

Required: Respond to the following questions.

1.How many cases of Bubbs does Luke have to sell in a single month in order to break even on the product?

Use Regression in Excel to find the fixed and variable portions of the production costs.

oCases will be the X variable and Production Costs will be the Y variable.

oProduce a line-fit plot with the regression output and with axes correctly labeled.

oSubmit your Excel file as part of the assignment.

Round the variable cost per unit and total fixed cost you find in the regression to two decimal places to answer questions 1 and 3.

Round your answer (breakeven number of cases) to the nearest whole number.

2. What is Bubbs' current margin of safety percentage?

3.Suppose Luke has a requirement that all products have to earn 7 percent of sales (after tax) per month or they will be dropped. How many cases of Bubbs does Mr. Andre need to sell in a month to avoid seeing Bubbs dropped? (round the number of cases to the nearest whole number)

You should use Solver in Excel to answer this problem, although it is not required.