Harborside Corp. produces swimsuits. Presented is the monthly information for th
ID: 3332430 • Letter: H
Question
Harborside Corp. produces swimsuits. Presented is the monthly information for the last 15 months:
Total Manufacturing Costs
Total Swimsuits produced
Boardshorts Produced
Bikinis Produced
January-16
28,431
118
51
68
February-16
31,945
169
34
135
March-16
35,488
142
74
68
April-16
35,787
166
61
105
May-16
42,175
196
122
75
June-16
31,884
149
47
101
July-16
30,021
122
54
68
August-16
40,455
189
71
118
September-16
35,129
172
51
122
October-16
37,382
159
74
85
November-16
31,201
132
58
74
December-16
40,794
176
81
95
January-17
36,253
169
61
108
February-17
38,880
182
68
115
March-17
25,414
105
41
71
3. Use multiple regression analysis to develop a cost-estimating equation for total manufacturing costs.
A customer has offered to purchase 75 boardshorts for $195 per item. Management has asked your
advice regarding whether or not to accept the offer. What advice do you have for management?
Harborside Corp. produces swimsuits. Presented is the monthly information for the last 15 months:
Total Manufacturing Costs
Total Swimsuits produced
Boardshorts Produced
Bikinis Produced
January-16
28,431
118
51
68
February-16
31,945
169
34
135
March-16
35,488
142
74
68
April-16
35,787
166
61
105
May-16
42,175
196
122
75
June-16
31,884
149
47
101
July-16
30,021
122
54
68
August-16
40,455
189
71
118
September-16
35,129
172
51
122
October-16
37,382
159
74
85
November-16
31,201
132
58
74
December-16
40,794
176
81
95
January-17
36,253
169
61
108
February-17
38,880
182
68
115
March-17
25,414
105
41
71
Explanation / Answer
Use excel to get the following regression output -
So, the total manufacturing cost can be written as -
Total Manufacturing Cost = 11230.61 + 372.88 (Total Swimsuits Produced) - 165.62 (Board Shorts Produced) -259.24 (Bikinis Produced)
Or, Y = 11230.61 + 372.88 (X1) - 165.62 (X2) - 259.24 (X3)
Where, X1 = Total Swimsuits Produced
X2 = Board Shorts Produced
and X3 = Bikinis Produced.
----------------------------------------------------------------------
Note that the coefficient of the parameter 'Board Shorts Produced' is '-165.62' which indicates that the manufacturing cost decreses by $165.62 for every unit increase in number of board shorts produced.
So, expected change in manufacturing cost assuming other factors to remain constant = 75 x -$165.62 = -$12421.5.
And amount offered by customer = 75 x $195 = $14,625
So, I would advice the management to accept the offer because this will not only reduce the total manufacturing cost, but also give profit.
SUMMARY OUTPUT Regression Statistics Multiple R 0.970262113 R Square 0.941408568 Adjusted R Square 0.925429086 Standard Error 1326.493942 Observations 15 ANOVA df SS MS F Significance F Regression 3 310990597 103663532.3 58.91358639 4.59844E-07 Residual 11 19355447.96 1759586.178 Total 14 330346044.9 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 11230.61364 2353.845814 4.771176421 0.000579582 6049.833939 16411.39335 Total Swimsuits Produced 372.8847494 208.9277771 1.784754304 0.10187183 -86.96218759 832.7316863 Board Shorts Produced -165.6160801 214.7250962 -0.771293542 0.45678173 -638.2228304 306.9906702 Bikinis Produced -259.2356412 215.4308584 -1.203335692 0.254105018 -733.3957636 214.9244813Related Questions
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