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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

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 14,470 (rounded to the nearest dollar)
X variable 1 8.79 (rounded to the nearest cent)
X variable 2 20.35 (rounded to the nearest cent)

Required:

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

$ + ($ Purchase orders) + ($ Nonstandard orders)

2. If Dohini Manufacturing Company estimates that next month will have 420 total purchase orders and 45 nonstandard orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.)

$

3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,350 purchase orders and 590 nonstandard orders?

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

$

What is the total fixed purchasing cost?

$

Why doesn't it equal the fixed cost calculated in Requirement 2 above?

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