Part 2:

Market Street Soup Company produces ten varieties of soup in large vats, several thousand gallons at a time. The

soup is distributed to several categories of customers. Some soup is packaged in large containers and sold to college

and university food services. Some is packaged in half-gallon or small containers and sold through wholesale

distributors to grocery stores. Finally, some is packaged in a variety of individual servings and sold directly to the

public from trucks owned and operated by Market Street Soup Company. Management has always assumed that

costs fluctuated with the volume of soup, and cost-estimating equations have been based on the following cost

function:

Estimated costs = Fixed costs + Variable costs per gallon * Production in gallons

Lately, however, this equation has not been a very accurate predictor of total costs. At the same

time, management has noticed that the volumes and varieties of soup sold through the three distinct distribution

channels have fluctuated from month to month.

Required:

c. Develop the general form of a more accurate cost-estimating equation for Market Street Soup Company.

Clearly label and explain all elements of the equation, and provide specific examples of costs for each

element.