Assume the local Pearle Vision has the following information on the number of sa
ID: 2573864 • Letter: A
Question
Assume the local Pearle Vision has the following information on the number of sales orders received and order-processing costs:
Month Sales Orders Order-Processing Costs
1 ……………………. 3,000 $32,000
2 ……………………. 1,500 22,400
3 ……………………. 4,000 63,000
4 ……………………. 2,800 31,200
5 ……………………. 2,300 25,600
6 ……………………. 1,000 18,000
7 ……………………. 2,000 24,000
Required:
a. Use the information from the high- and low- volume months to develop a cost-estimating equation for monthly order-processing costs.
b. Based on the cost-estimating equation developed in (a), estimate the monthly order-processing cost if the sales order in Month 8 is 2,000 orders.
c. If Pearle Vision’s marketing department estimates that the optimal cost is $18 per sales order, how many sales order does Pearle Vision needs to make in order to reach the optimal processing costs in any particular month based on the cost-estimating equation developed in (a)?
Explanation / Answer
a) Variable component (or slope) = (Mixed cost at highest activity level-Mixed cost at lowest activity level)/(Highest level of activity-Lowest level of activity) = (63000-18000)/(4000-1000) = $15 per sale order Fixed cost = 63000-4000*15 = $3000 Cost equation: y = 3000+15*x, where x is the number of sales orders b) Monthly order processing costs for 2000 orders = 3000+15*2000 = $ 33,000 c) $18 is the required total order processing costs per unit. That is $18 = (3000+15*x)/x Solving for x 18x=3000+15x 3x = 3000 x = 1000 Sales orders [Answer]
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