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ORCO , a cooperative of organic family-owned farms outside of Madison, Wisconsin, has recently started a fresh produce club to provide support to the groups

ORCO, a cooperative of organic family-owned farms outside of Madison, Wisconsin, has recently started a fresh produce club to provide support to the groups member farms and to promote the benefits of eating organic, locally produced food to the nearby suburban community. Families pay a seasonal membership fee of $29 and place their orders a week in advance for a price of $49per order. In turn, ORCO delivers fresh-picked seasonal local produce to several neighbourhood distribution points. 600families joined the club for the first season, but the number of orders varied from week to week. Daniel Craig has run the produce club for the first 10-week season. Before becoming a farmer, Daniel had been a business major in college, and he remembers a few things about cost analysis. In planning for next year, he wants to know how many orders will be needed each week for the club to break even, but first he must estimate the clubs fixed and variable costs. He has collected the following data over the clubs first 10 weeks of operation:

Week

Number of orders per week

Total weekly costs

1

353

19005

2

380

19500

3

424

22400

4

475

23404

5

445

22671

6

495

23656

7

330

18000

8

490

23712

9

545

25010

10

520

25100

Please answer the following questions: (next page)

REQUIRED:

1. Plot the relationship between number of orders per week and weekly total costs on a graph. (0.5 marks) 2. Estimate the cost equation using the high-low method, and draw the cost curve on your graph. (1 mark) 3. Daniel uses least square regression on his computer to calculate the following cost function: Total weekly costs = $6981 + ($34.25 * Number of weekly orders) Draw the regression line on your graph. (0.5 marks)

4. Is the least square regression line plausible (makes sense)? Explain. (0.5 marks)

5. Which cost function (estimated by the high-low method, orestimated using the least square regression method) is better? Explain why briefly. (0.5 marks) 6. Did ORCO break even this season? Remember that each of the families paid a seasonal membership fee. (1 mark) 7. Assume that next year no membership fee is charged and that otherwise the prices and costs do not change. How manyorders, on average, must ORCO receive each week to break even? Assume that the season is again 10 weeks long. (1 mark)

please answer on question 6 and 7

image text in transcribed
ORCO, a cooperative of organic family-owned farms outside of Madison, Wisconsin, has recently started a fresh produce club to provide support to the group's member farms and to promote the benefits of eating organic, locally produced food to the nearby suburban community. Families pay a seasonal membership fee of $29 and place their orders a week in advance for a price of $49 per order. In turn, ORCO delivers fresh-picked seasonal local produce to several neighbourhood distribution points. 600 families joined the club for the first season, but the number of orders varied from week to week. Daniel Craig has run the produce club for the first 10-weck scason. Before becoming a farmer, Daniel had been a business major in college, and he remembers a few things about cost analysis. In planning for next year, he wants to know how many orders will be needed each week for the club to break even, but first he must estimate the club's fixed and variable costs. He has collected the following data over the club's first 10 weeks of operation: Please answer the following questions: (next page) REQUIRED: 1. Plot the relationship between number of orders per week and weekly total costs on a graph. ( 0.5 marks) 2. Estimate the cost equation using the high-low method, and draw the cost curve on your graph. ( 1 mark) 3. Daniel uses least square regression on his computer to calculate the following cost function: Total weekly costs =$6981+($34.25 Number of weekly orders) Draw the regression line on your graph. ( 0.5 marks) 4. Is the least square regression line plausible (makes sense)? Explain. (0.5 marks) 5. Which cost function (estimated by the high-low method, or estimated using the least square regression method) is better? Explain why briefly. ( 0.5 marks) 6. Did ORCO break even this season? Remember that each of the families paid a seasonal membership fee. (1 mark) 7. Assume that next year no membership fee is changed and that otherwise the prices and costs do not change. How many orders, on average, must ORCO receive each week to break even? Assume that the season is again 10 weeks long. (1 mark)

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