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.

REQUIRED: Answer the following questions below, supported with calculations on your completed Excel file.

1. The sales rep has asked you to verify his above calculations. Answer below.

2. 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?

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

4. 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?

A B D E F G H I J K L M N o P Q 1 Mesa Tables 2 3 4 Dining Room Tables Produced 50 Total Tables Produced Month Kitchen Tables Produced 200 1 250 5 6 2. 105 205 7 105 3 4 8 40 100 180 170 100 100 9 5 6 10 11 75 110 90 7 155 12 8 50 200 150 9 70 10 Total Manufacturing Costs $46,650 $50,888 $60,630 $37,943 $42,120 $52,575 $53,018 $47,325 $47,235 $44,475 $69,350 $59,933 $52,043 $55,380 $46,223 $60,120 $60,435 $53,708 $57,600 $37,650 13 14 15 16 17 80 11 285 210 175 210 245 250 220 180 315 280 255 235 195 300 260 250 270 165 100 135 175 180 180 105 75 12 13 18 14 110 85 125 110 19 15 20 16 120 180 140 17 120 18 90 21 22 23 24 25 160 170 19 100 20 60 105 A B D E F G H I J K L M N o P Q 1 Mesa Tables 2 3 4 Dining Room Tables Produced 50 Total Tables Produced Month Kitchen Tables Produced 200 1 250 5 6 2. 105 205 7 105 3 4 8 40 100 180 170 100 100 9 5 6 10 11 75 110 90 7 155 12 8 50 200 150 9 70 10 Total Manufacturing Costs $46,650 $50,888 $60,630 $37,943 $42,120 $52,575 $53,018 $47,325 $47,235 $44,475 $69,350 $59,933 $52,043 $55,380 $46,223 $60,120 $60,435 $53,708 $57,600 $37,650 13 14 15 16 17 80 11 285 210 175 210 245 250 220 180 315 280 255 235 195 300 260 250 270 165 100 135 175 180 180 105 75 12 13 18 14 110 85 125 110 19 15 20 16 120 180 140 17 120 18 90 21 22 23 24 25 160 170 19 100 20 60 105