Suenos Manufacturing Company had the following 12 months of data on purchasing c

Question

Suenos Manufacturing Company had the following 12 months of data on purchasing cost and number of purchase orders.

Month Purchasing Cost Number of purchase orders

January $20,068 330

February 20,890 370

March 20,750 410

April 22,050 400

May 21,900 450

June 21,300 460

July 23,426 560

August 21,670 440

September 22,250 500

October 21,200 470

November 21,800 480

December 20,800 370

The controller fro Suenos Manufactoring ran regression on thr above data, and the coeficients shown by the regression program (rounded to the nearest cent) are:

Intercept 16,403.85

X Variable 1 11.69

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

2. If Suenos Manufacturing Company estimates that next month will have 430 purchase orders, hat is the total estimted purchasing cost for that month? (Round your answer to the nearest dollar.)

3. What if SuenosManufactuing Company wants to estimate purchasing cost for the coming year and expects 5,340 purchase 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 1 abouve?

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Cost Formula for Purchasing Activity = 16403.85 + 11.69*Number of Purchase Orders

Part 2:

Total Estimated Cost for the Next Month = 16403.85 + 11.69*430 = 21430.55 or 21431

Part 3:

Total Estimated Purchasing Cost for the Year = 12*16403.85 + 11.69*5340 = 259270.8 or 259271

Total Fixed Purchasing Cost = 12*16403.85 = 196846.20 or 196846

The fixed cost for the year is calculated for 12 months and hence it is 196846(rounded off) instead of 16403.68 (which is only for a month). This the reason for difference between requirement 1 and requirement 3.

Thanks.

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