Using Multiple Regression Results to Construct and Apply a Cost Formula

The controller for Dohini Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He collected data on the number of nonstandard orders for the past 12 months and added that information to the data on purchasing cost and total number of purchase orders.

Month Purchasing Cost Number of Purchase Orders Number of Nonstandard Orders January $18,860 370 53 February 18,065 330 35 March 19,250 370 61 April 18,050 410 14 May 19,345 400 73 June 19,500 450 55 July 19,670 460 30 August 20,940 560 80 September 19,430 440 51 October 20,020 500 50 November 18,800 470 12 December 19,340 480 27 Multiple regression was run on the above data; the coefficients shown by the regression program are:

Intercept 14,490 (rounded to the nearest dollar) X variable 1 8.8 (rounded to the nearest cent) X variable 2 20.37 (rounded to the nearest cent) Required:

1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate.

$fill in the blank 1 + ($fill in the blank 2 Purchase orders) + ($fill in the blank 3 Nonstandard orders) 2. If Dohini Manufacturing Company estimates that next month will have 430 total purchase orders and 45 nonstandard orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.)

$fill in the blank 4 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders and 600 nonstandard orders?

What will estimated total purchasing cost be? (Round your answer to the nearest dollar.)

$fill in the blank 5 What is the total fixed purchasing cost?

$fill in the blank 6 Why doesn't it equal the fixed cost calculated in Requirement 2 above?