Question

Lin da joined Galway Company, a toy manufacturer, one month ago and has not learned much about ng. In spite of lacking for experience in this area, her boss Ron has urged her to sta budgeting project due to a shortage of staff in house. Ron wants to know how much total delivery costs would be incurred next month with an expectation of 2,000 toys sold and delivered, an unprecedented number in Galway's history. Ron has not told Linda much information and what to do about this project but only given the following numbers related to the delivery units and costs incurred in the past 12 months. Linda asks you to help her complete the assigned work. Units Delivery Units Delivery Month delivered cost Month delivered cost 1,250 $26,000 1,400 30,000 1,300 24,000 1,500 33,500 1,700 36,000 1,600 34,000 800 $20,0007 1,000 21,000 8 900 19,500 9 1,200 22,500 10 1,400 29,500 11 1,100 21,500 12 4 Instructions 1. Explain the work that Linda has been assigned in your own words. Then develop a step-by- step plan to achieve the goal. 2. Use alternative methods to determine the expected delivery cost with 2,000 units delivered. 3 me thods 3. Discuss the advantages and disadvantages of the alternative methods you use. 4. Assume that the delivery cost in Month 4 is $30,000 instead of $22,500, and everything else is the same. The significantly high cost of $30,000 in Month 4 was caused by an incident that is not expected to recur in the future. Linda is not sure what to do with the data of Month 4 Help her to redevelop the regression model and determine the expected delivery costs with 2,000 units delivered. hioh-louw rethod Scottera raeh motvod 3 Least Squave matho

Just questions 2 and 4 please

Answer 1

Answer 2:

High Low Method

Variable Cost = (Cost for highest units - Cost for lowest units) / (highest units - lowest units)

= (36000 - 20000)/(1700-800) = $ 17.78

Fixed Cost = 20000 - 17.78*800 = $ 5777.78

Thus, using these 2 variables, cost for 2000 units = 17.78*2000 + 5777.78 = $ 41333.33

MonthUnits High Low Scattergraph Least Squares 20.35 769.77 Cost 2 5 17.78 5,777.78 20000 16000000 640000 21000 21000000 1000000 1950017550000810000 22500 27000000 1440000 29500 41300000 1960000 21500 23650000 1210000 26000 32500000 1562500 000042000000 1960000 24000 312000001690000 3350050250000 2250000 3600061200000 2890000 400054400000 2560000 15150 317500 418050000 19972500 VC 2 20.35 100021 FC 769.77 1200 Cost 41,333.33 41,463.77 41,464.52 1 1100 12502 1400 3 1300 Cost 10 y 20.347x 769.77 R3 0.9076 1700 16003 Total 20000 Cost Linear (Cost) Vertical (Value) Axis 1000 2000 Axis Title

Scattergraph Method

Using MS Excel for a scattergraph, using the data, we get an equation given below for the scatter

y = 20.347 x + 769.77

Using this equation, we can see that for 2000 units, Cost = 20.347 * 2000 + 769.77 = 41463.77

Least Square Method

Formula for least square method

Variable cost = $(n \sum (xy) - \sum x\sum y)/(n\sum (x^{2})- (\sum x)^2)$   

Fixed Cost = $(\sum y - b\sum x)/n$

So, variable cost = 20.35

Fixed cost = 769.77

Cost for 2000 units = 41464.52

Answer 4:

Since the event is not likely to recur, its an outlier and the costs needs to examined with and without that data point

Using Least Squares method

With revised data point, Cost = $ 41681

Without data point , Cost = $ 41984

Since, the difference is high, we need to omit that data point as it is pulling the regression from its true best fit

Thus, removing that data point, Cost for 2000 units = $ 41984