Wolf Enterprises manufactures widgets at a single manufacturing facility. Corporate headquarters are located at the same site. Historical cost information shows the average costs at the following production levels .

Production in units	3,000	3,750	4,500
Cost of goods manufactured
Direct Materials	$ 198,000	$ 247,500	$297,000
Direct Labor	126,000	157,500	189,000
Overhead
Building depreciation-factory portion	5,000	5,000	5,000
Equipment lease	4,500	4,500	4,500
Factory supplies	1,600	1,930	2,260
Indirect Labor	5,500	5,500	5,500
Quality Inspection Costs	13,360	14,200	15,040
Selling and Administrative Expenses
Shipping	45,500	51,875	58,250
Advertising expense	50,000	50,000	50,000
Salaries and commissions	137,000	155,000	173,000
Insurance expense	10,000	10,000	10,000
Total	$ 596,460	$ 700,005	$ 809,550

State the cost equation for the total costs in the form Y = a + bx. Show how you determined the cost equation. (Note: you should have one equation such that someone could determine expected total cost for any activity level within the relevant range.)

Cost equation:

Use the chart below (Alternative one) which shows the fixed cost portion and the variable rate for each cost item or use the high- low method (Alternative two) for determining the cost equation. You need to choose only one alternative.

Alternative one: (use the information and chart from part A and the information from part B. Input the $ amounts in appropriate columns and total the columns of the chart. Using the chart information, state the cost equation in the Y = a + bx form.)

	Fixed Cost	Variable Rate ($/unit)
Direct Materials
Direct Labor
Building dep-factory portion
Equipment lease
Factory supplies
Indirect Labor
Quality Inspection Costs
Shipping
Advertising expense
Salaries and commissions
Insurance expense
TOTAL COST

Alternative two: High-low method and supporting, labeled computations.

E. What considerations would the company need to make before using this model to project these costs out into the future? Provide at a minimum 3-4 factors to consider with respect to cost projection. Do not address other areas such as profitability in your answer. Use complete sentences. Be specific. Dont just say costs may increase or decrease.

When using the model you are assuming that costs will remain constant into the future and that the future reflects the average observed costs of the past. In your answer, you should be looking at items that challenge those assumptions or other assumptions that may have been made.