Requirement 1a. What is the average cost of manufacturing a drink bottle in
20202020?
How does it compare to
RyanRyan's
offer?
The average cost of
2.6
per bottle is
less
than Ryan's offer.
Part 2
Requirement 1b. Can
GrahamGraham
use the answer in requirement 1a to determine the cost of manufacturing
264 comma 000264,000
drink bottles? Explain.
GrahamGraham
cannot
can
cannot
take the average manufacturing cost in
20202020
to determine the total cost of manufacturing
264 comma 000264,000
drink bottles. The reason is that
some of the total costs are fixed costs and some are variable costs
all of the total costs are fixed costs
all of the total costs are variable costs
some of the total costs are fixed costs and some are variable costs
.
Part 3
Requirement 2.
GrahamGraham's
cost analyst uses annual data from past years to estimate the following regression equation with total manufacturing costs of the drink bottle as the dependent variable and drink bottles produced as the independent variable:
y equals $ 438 comma 000 plus $ 1.00 Upper Xy=$438,000+$1.00X.
During the years used to estimate the regression equation, the production of drink bottles varied from
239 comma 000239,000
to
274 comma 000274,000.
Using this equation, estimate how much it would cost
GrahamGraham
to manufacture
264 comma 000264,000
drink bottles. How much more or less costly is it to manufacture the bottles rather than to acquire them from
RyanRyan?
Estimate how much it would cost
GrahamGraham
to manufacture
264 comma 000264,000
drink bottles, then calculate the cost to purchase the bottles.
Estimated cost to make the bottles
702000
Cost to purchase the bottles
2.66
Part 4
It will cost
0.05
less
to purchase the bottles rather than manufacture them in-house.
Part 5
Requirement 3. What other information would you need to be confident that the equation in requirement 2 accurately predicts the cost of manufacturing drink bottles? (Select all that apply.)
A.
Does the slope of the regression line indicate that a strong relationship exists between manufacturing costs and the number of drink bottles produced?
B.
Can
GrahamGraham's
competitors manufacture drink bottles at a cost less than
GrahamGraham?
C.
How good is the goodness of fit? That is, how well does the estimated line fit the data?
D.
Is the relationship between total manufacturing costs and quantity of drink bottles economically plausible?