Your company provides a variety of delivery services. Management wants to know the volume of a particular delivery that would generate $10,300 per month in operating profits before taxes. The company charges $20 per delivery.
The controller’s 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 = $24,942 + $10.70 per delivery
Your estimate was based on the following data.
Month | Overhead Costs | Number of Deliveries |
1 | $142,730 | 11,580 |
2 | 151,820 | 12,330 |
3 | 192,740 | 15,810 |
4 | 141,080 | 11,400 |
5 | 203,790 | 12,930 |
6 | 180,600 | 14,880 |
7 | 159,720 | 12,660 |
8 | 183,960 | 15,210 |
9 | 194,350 | 15,600 |
10 | 150,320 | 12,120 |
11 | 154,280 | 12,780 |
12 | 185,010 | 15,450 |
13 | 183,280 | 14,730 |
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 controller’s results.
Determine the amount of deliveries needed to earn operating profits of $10,300. (Round your intermediate calculations to 2 decimal places. Roundup "unit" answer to the nearest whole number.)
Amount of deliveries needed = (fixed cost + desired operating profit)/ contribution margin
Contribution margin = 20-10.70 = 9.30
Amount of deliveries needed = (24942+10300)/9.30 = 3789 deliveries
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