Question

Required information [The following information applies to the questions displayed below.] Caiman Distribution Partners is the Brazilian distribution company of a U.S. consumer products firm. Inflation in Brazil has made bidding and budgeting difficult for marketing managers trying to penetrate some of the country's rural regions. The company expects to distribute 450,000 cases of products in Brazil next month. The controller has classified operating costs (excluding costs of the distributed product) as follows. Account Supplies Supervision Truck expense Building leases Utilities Warehouse labor Equipment leases Data processing equipment Other Total Operating Cost $ 562,000 202,000 1,260,000 874,000 205,000 872,000 753,000 933,000 854,000 $6,515,000 Behavior All variable $145,000 Fixed $209,000 Fixed $ 550,000 Fixed $ 120,000 Fixed $ 131,000 Fixed $599,000 Fixed All fixed $408,000 Fixed Although overhead costs were related to revenues throughout the company, the experience in Brazil suggested to the managers that they should incorporate information from a published index of Brazilian prices in the distribution sector to forecast overhead in a manner more likely to capture the economics of the business.

Answer 1

1)
	Operating Cost	Fixed	Variable
Supplies	$            562,000	$                  -	$            562,000
Supervision	$            202,000	$         145,000	$              57,000
Truck expense	$         1,260,000	$         209,000	$         1,051,000
Building leases	$            874,000	$         550,000	$            324,000
Utilities	$            205,000	$         120,000	$              85,000
Warehouse labor	$            872,000	$         131,000	$            741,000
Equipment leases	$            753,000	$         599,000	$            154,000
Data processing equipment	$            933,000	$         933,000	$                      -
Other	$            854,000	$         408,000	$            446,000
Total	$         6,515,000	$      3,095,000	$         3,420,000
a) VARIABLE COST PER CASE  = Total variable cost/ TotalCases Produced = $3420000/ 450,000	$                  7.60
b) ESTIMATE OF OPERATING COST = Total Fixed Cost + Variable cost per case x Number of cases produced
ESTIMATE OF OPERATING COST = 3095000 + $7.60 x 450,000	$    6,515,000.00
b)
High-low method
Step 1		Number of Cases	Total cost
High Month	Month 12	429,000	$    6,362,261.00
Low Month	Month 1	322,000	$    5,699,145.00
Difference		107,000	$       663,116.00
Step - 2 Variable cost per cases = $663116/107,000	$            6.19735
Step-3
Fixed Cost = Total cost + Variable cost per case x no. of cases
Fixed Cost = 6,362,261 + $6.20 x 429000	$    3,703,599.65
Cost Equation is
Overhead cost = $3,703,599.65 + $6.20 x No. of cases
For 450,000 cases
ESTIMATE OF OPERATING COST = $3,703,599.65 + $6.20 x 450,000	$    6,492,405.26
c) Enter the regression coefficients. (Round "Cases" to 5 decimal places.)
Simple regression based on Cases
Cases  = x	Operating Costs  = y
322,000	$5,699,145
353,000	$5,806,644
323,000	$5,849,911
376,000	$5,927,623
364,000	$5,939,141
372,000	$6,043,370
380,000	$5,918,501
428,000	$6,133,874
378,000	$6,126,136
420,000	$6,186,631
420,000	$6,208,805
429,000	$6,362,261
SUMMARY OUTPUT
Regression Statistics
Multiple R	0.900419489
R Square	0.810755256
Adjusted R Square	0.791830782
Standard Error	87868.85045
Observations	12
ANOVA
	df	SS	MS	F	Significance F
Regression	1	3.30777E+11	3.30777E+11	42.84163	6.51E-05
Residual	10	77209348789	7720934879
Total	11	4.07987E+11
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	4264267.484	268956.6622	15.85484981	2.05E-08	3664995	4863540	3664995	4863540
X Variable 1 (Cases)	4.606973099	0.703854194	6.545351496	6.51E-05	3.038688	6.175258	3.038688	6.175258
ESTIMATE OF OPERATING COST = $4264267.484 + $4.6070 x 450,000	$    6,337,405.38