Question

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 Operating cost $ 382,000 208,000 1,280,000 870,000 224,000 852,000 762,000 931,000 859,000 $6,368,000 Behavior All variable $130,000 Fixed $189,000 Fixed $534,000 Fixed $115,000 Fixed $124,000 Fixed $607,000 Fixed All fixed $408,000 Fixed Total 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. Following instructions from the corporate offices, the controller's office in Brazil collected the following information for monthly operations from last year. Month NO OWN Cases 310,000 358,000 343,000 373,000 360,000 378,000 381,000 419,000 362,000 425,000 403,000 426,000 Price Index 122 114 120 121 128 115 128 129 131 141 135 Operating costs $5,699,143 5,806,642 5,849,909 5,927,621 5,939,139 6,043, 368 5,918,499 6,133,872 6, 126, 134 6,186,629 6,208,803 6,362, 259 These data are considered representative for both past and future operations in Brazil. b. Use the high-low method to compute an estimate of operating costs assuming that 450,000 cases will be shipped next month. (Round variable cost to 5 decimal places. Round intermediate calculations and final answer to nearest whole dollar amount.) Estimate of operating cost C-1. Using Excel, calculate the simple regression of operating costs on cases shipped and enter the regression coefficients. c-2. Compute the estimation of operating costs assuming that 450,000 cases will be shipped next month by using the results of a simple regression of operating costs on cases shipped. d-1. Enter the regression coefficients. d-2. Compute the estimation of operating costs assuming that 450,000 cases will be shipped next month by using the results of a multiple regression of operating costs on cases shipped and the price level. Assume a price level of 141 for next month. e. Select the most appropriate estimate for the given circumstances. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) Multiple regression Controller's analysis Simple regression High-low method

Answer 1

Book1 - Excel (Product Activation Failed) 2 x & Share Formulas Data Review View Tell me what you want to do... File A 11 Home Insert Page Layout %Cut Calibri Le Copy - Format Painter BIU- J Clipboard Font AA === EE General % - Sign in AutoSumA , O Sort & Find & Clear Filter - Select Editing Paste A Wrap Text E Merge & Center, Alignment E 38,99 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Number Cells C D E F G H I J K L M N O P A Simple Regression A B 1 SUMMARY OUTPUT 2 3 Regression Statistics 4 Multiple R 0.87814797 5 R Square 0.771143858 6 Adjusted R Square 0.748258244 7 Standard Error 96628.29537 8 Observations 12 9 10 ANOVA 11 1 10 11 SS 3.14616E+11 93370274652 4.07987E+11 MS F Significance F 3.14616E+11 33.695572 0.00017183 9337027465 12 Regression 13 Residual 14 Total 15 16 17 Intercept 18 Cases t Coefficients 4203389.464 4.795360166 Standard Error 313647.9042 0.826104172 Stat P-value 13.40161821 1.027E-07 5.804788703 0.0001718 Lower 95% Upper 95% Lower 95.0% Upper 95.0% 3504538.38 4902240.55 3504538.38 4902240.545 2.95468536 6.63603497 2.95468536 6.636034967 23 ... Sheet6 Sheet7 Sheets Sheet10 Sheet12 Sheet + Activate Windows Go to Settings to activate Windows -- + 13:31 A » ENG 14-02-2020 Ready 100% Type here to search F4

Book1 - Excel (Product Activation Failed) 2 x & Share Formulas Data Review View Tell me what you want to do... 11 = AA === EE General % - Sign in Σ AutoSum : Αν Sort & Find & Clear Filter - Select Editing A Wrap Text E Merge & Center, Alignment E 38,99 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Number Cells File Home Insert Page Layout % Cut Calibri Le Copy Paste Format Painter BIU- J Clipboard Font E8 x fe ДА B 1 SUMMARY OUTPUT 2 3 Regression Statistics 4 Multiple R 0.90119695 5 R Square 0.81215594 6 Adjusted R Square 0.77041282 7 Standard Error 92278.4966 8 Observations C E F G H I J K L M N O P Q R E Multiple Regression 12 9 10 ANOVA 11 2 9 11 SS SS MS F Significance F 3.31349E+11 1.66E+11 19.45604 0.000539621 76637888375 8.52E+09 4.07987E+11 12 Regression 13 Residual 14 Total 15 16 17 Intercept 18 Cases 19 Price Index 20 21 Coefficients Standard Error Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% 3783405.43 423654.1558 8.93041 9.1E-06 2825033.148 4741777.714 2825033.148 4741777.71 3.83743865 1.043730914 3.676655 0.005102 1.476355288 6.198522014 1.476355288 6.19852201 6179.62885 4408.430126 1.401775 0.194515 -3792.93293 16152.19064 -3792.93293 16152.1906 23 ... Sheet6 Sheet7 Sheets Sheet10 Sheet12 Sheet + Activate Windows Go to Settings to activate Windows -- 13:30 ^ ) ENG 14-02-2020 Ready Type here to search o e m ê wi x] F4
Solution:

b. High – Low method:

Variable costs per unit = (Highest activity cost – Lowest activity cost) / (Highest activity units –

                                                                                                                                Lowest activity units)

Variable Costs per unit = (6362259 – 5699143) / (426000 – 310000)

                                                = 663116 / 116000

                                                = 5.71652 per unit

Fixed cost = Operating cost – Variable cost * No. of units

                     = 6362259 – (5.71652 * 426000)

                      = $ 3,927,022.

Estimate of Operating cost for 450,000 cases,

Estimate of Operating cost = Fixed cost + No. of units*Variable cost per unit

                                                       = 3927022 + 450000*5.71652

                                                       = $ 6,499,456

c-1. Single Regression:

Month	Cases	Price Index	Operating Costs
1	310000	122	5699143
2	358000	114	5806642
3	343000	120	5849909
4	373000	121	5927621
5	360000	128	5939139
6	378000	115	6043368
7	381000	128	5918499
8	419000	129	6133872
9	362000	131	6126134
10	425000	141	6186629
11	403000	135	6208803
12	426000	135	6362259

C2. Single regression is done using excel, the equation is,

Estimate of Operating cost = 4203389.464 + 4.7954 * no. of cases

                                                = 4203389.464 + 4.7954 * 450000 units

                                                = $6,361,302

d-1. Regression co-efficient:

Intercept = 4203389.464

Cases = 4.7954

d-2. Multiple regression:

Estimate of Operating cost = 3783405.43 + (3.8374 *no. of cases) + (6179.6289 * Price index)

                                                    = 3783405.43 + (3.8374 * 450000) + (6179.6289 * 141)

                                                    = 3783405.43 + 1726830 + 871327.6749

                                                    = $6,381,581

Regression co-efficient:

Intercept = 3783405.43

Cases = 3.8374

Price Index = 6179.6289