Problem 2. Cost Analysis & Regression (20%)

Mesa Table Company produces two styles of tables, dining room and kitchen. The Excel file that accompanies this problem presents information on production volume and manufacturing costs.

A customer has made a special offer to purchase 50 dining room tables for $230 per table. The production manager has indicated that next months capacity is sufficient to accommodate the order without impacting planned production, and projected sales are already above our breakeven point.

The sales representative working with the customer has looked at the above production and recommends accepting the special order, based on his calculations of (1) average cost calculation of just under $217.75 per table and (2) an incremental cost per table using his high-low analysis of just under $211.35.

believing he can impress management with a simple regression analysis, he asks you to develop a cost-estimation equation for total production and manufacturing costs. What is your models cost function prediction, and how much confidence do you have in its predictive ability?

What do the two calculations provided by the sales rep and your simple regression suggest regarding the desirability of accepting the offer?

Management has asked you to provide additional analysis of manufacturing costs to determine whether the order should be accepted. Note this may require additional analysis and critical thinking. What does your new analysis suggest regarding the desirability of accepting the offer?

Month	Dining Room Tables Produced	Kitchen Tables Produced	Total Tables Produced	Total Manufacturing Costs
1	50	200	250	$46,650
2	105	100	205	$50,888
3	105	180	285	$60,630
4	40	170	210	$37,943
5	75	100	175	$42,120
6	110	100	210	$52,575
7	90	155	245	$53,018
8	50	200	250	$47,325
9	70	150	220	$47,235
10	80	100	180	$44,475
11	180	135	315	$69,350
12	105	175	280	$59,933
13	75	180	255	$52,043
14	110	125	235	$55,380
15	85	110	195	$46,223
16	120	180	300	$60,120
17	120	140	260	$60,435
18	90	160	250	$53,708
19	100	170	270	$57,600
20	60	105	165	$37,650