Your company provides a variety of delivery services. Management wants to know the volume of a particular delivery that would generate $10,000 per month in operating profits before taxes. The company charges $20 per delivery.

The controllers office has estimated overhead costs at $9,000 per month for fixed costs and $12 per delivery for variable costs.

You believe that the company should use regression analysis. Your analysis shows the results to be:

Monthly overhead = $26,501 + $10.70 per delivery

Your estimate was based on the following data:

Month Overhead Costs Number of Deliveries

1 $ 142,860 11,430

2 151,890 12,180

3 192,600 15,660

4 141,030 11,250

5 203,490 12,780

6 180,630 14,730

7 159,630 12,510

8 183,990 15,060

9 194,430 15,450

10 150,120 11,970

11 154,080 12,630

12 184,800 15,300

13 183,120 14,580

The company controller is somewhat surprised that the cost estimates are so different.

You have been asked to recheck your work and see if you can figure out the difference between your results and the controllers results.

Required

a. Analyze the data and your results and state your reasons for supporting or rejecting your cost equation.

b. Write a report that informs management about the correct volume that will generate $10,000 per month in operating profits before taxes.