Patty's Mailbox Company Produces a Standard Mailbox with Variable Manufacturing

question 231

Essay

Patty's Mailbox Company produces a standard mailbox with variable manufacturing costs of $18 per unit. The selling price of the standard mailbox is $25 per unit. The fixed manufacturing overhead cost is $67,000. A normal production run includes 100,000 units. Patty's Mailbox Company has discovered an additional process to change the standard mailbox into a deluxe mailbox. Additional costs are estimated at $4 per unit. The deluxe mailbox would sell for $35. Additional fixed manufacturing overhead cost of $23,000 would be incurred if the deluxe mailbox is produced. There would be no change in the number of units produced.
Make an analysis to determine if Patty's Mailbox Company should continue to produce and sell the standard mailbox or change the standard mailbox into a deluxe mailbox.

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Definitions:

Dependent Variable

The dependent variable is the variable in an experiment or model that is expected to change in response to changes in the independent variable.

Multiple Regression Model

A statistical technique that analyzes the relationship between two or more predictor variables and a single response variable.

Dependent Variable

A variable in an experiment or model that is affected by changes in other variables, often examined to observe the effect of a manipulation.

Coefficient Of Determination

A statistical measure represented by R² that assesses the extent of variance for a dependent variable that's predictable from the independent variable(s).