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 $5.50 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

$

1,415,975

Costs

Production costs

$

(1,285,451)

Product-line margin

$

130,524

Allowance for tax (@20%)

(26,104.80)

Product-line profit (loss)

$

104,419.20

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

220,000

$1,147,828

2

219,200

1,174,265

3

216,900

1,174,981

4

233,000

1,193,523

5

239,900

1,195,827

6

241,000

1,216,673

7

222,200

1,195,699

8

249,200

1,215,210

9

242,800

1,233,226

10

254,600

1,245,325

11

249,500

1,249,760

12

257,450

1,285,451

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 regression output in an 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 2.

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

2.Suppose Luke has a requirement that all products have to earn an after-tax profit equal to 8 percent of total sales 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)

Use Solver in Excel to answer this problem

Turn in:

1. Submit an Excel file with separate spreadsheet tabs for each of the two questions. Make sure the answer to each question is clearly labeled for me to see. The answers do not need to be extensive. Just make sure the answer is correctly labeled (i.e., number of cases for questions 1 and 2). You must show your work for the two problems using spreadsheets where you solve the problems using cell-referenced equations.

2. Make sure your Excel file includes the regression output used to solve question 1. The file must include the regression output and the line-fit plot with axis correctly labeled (i.e., the x and y axis have correct labels describing what they measure).

Rubric:

The answer to each question is worth 25 points.

The regression output, including a correctly labeled line fit plot is worth 25 points.

Total: 75 points

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 $5.50 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

$

1,415,975

Costs

Production costs

$

(1,285,451)

Product-line margin

$

130,524

Allowance for tax (@20%)

(26,104.80)

Product-line profit (loss)

$

104,419.20

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

220,000

$1,147,828

2

219,200

1,174,265

3

216,900

1,174,981

4

233,000

1,193,523

5

239,900

1,195,827

6

241,000

1,216,673

7

222,200

1,195,699

8

249,200

1,215,210

9

242,800

1,233,226

10

254,600

1,245,325

11

249,500

1,249,760

12

257,450

1,285,451

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 regression output in an 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 2.

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

2.Suppose Luke has a requirement that all products have to earn an after-tax profit equal to 8 percent of total sales 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)

Use Solver in Excel to answer this problem

Turn in:

1. Submit an Excel file with separate spreadsheet tabs for each of the two questions. Make sure the answer to each question is clearly labeled for me to see. The answers do not need to be extensive. Just make sure the answer is correctly labeled (i.e., number of cases for questions 1 and 2). You must show your work for the two problems using spreadsheets where you solve the problems using cell-referenced equations.

2. Make sure your Excel file includes the regression output used to solve question 1. The file must include the regression output and the line-fit plot with axis correctly labeled (i.e., the x and y axis have correct labels describing what they measure).

Rubric:

The answer to each question is worth 25 points.

The regression output, including a correctly labeled line fit plot is worth 25 points.

Total: 75 points