Use the following information for all parts of question 2:

Executives at a manufacturing company must determine which of two production methods should be used in making a new product: Automated method vs. Manual Method. They are asking you, as the managerial accountant, to provide them with information so that the 'best' production option can be chosen.

You have assembled the following data:

Automated Method: Variable costs are expected to be $3.10 per unit. Total fixed costs are expected to be $150,000.

Manual Method: Variable costs are expected to be $4.50 per unit. Total costs are expected to be $50,000.

The new product will be sold for $25 per unit, whichever production method is chosen.

f) Assuming 15,000 units are sold, construct a contribution margin income statement FOR EACH PRODUCTION METHOD

g) Using the contribution margin income statements you just prepared in (f), calculate the operating leverage FOR EACH PRODUCTION METHOD

h) If sales were to increase by 30%, indicate which of the two production methods would be more profitable. USE CALCULATIONS IN (g) TO ANSWER THE QUESTION

i)Given all of the above information that you have gathered about the two manufacturing methods, which one would you recommend to the executives that they adopt? Briefly explain your answer.

(j) Using the data presented in question (b), prepare the cost estimation formula using the REGRESSION METHOD.

(k) Assuming 35,000 pounds of potatoes are expected to be used next year, calculate the total estimated costs using (1) the High-Low cost formula and (2) the Regression formula

(l) BRIEFLY explain which formula will give a more accurate forecast (all else being the same)