The Feline Company Has Been Having Some Difficulties Estimating Its

question 58

Essay

The Feline Company has been having some difficulties estimating its manufacturing overhead costs.In the past,manufacturing overhead costs have been related to production levels.However,some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs.In order to investigate this possibility,the company collected information on its monthly manufacturing overhead costs,production in units,and average production lot size for 2016.
$$\begin{array} { | c | r | r | c | } \hline \text { Month } & \begin{array} { r } \text { Production } \\\text { (Units) }\end{array} & \begin{array} { r } \text { Manufacturing } \\\text { Ovenead Cost }\end{array} & \begin{array} { c } \text { Average Monthly } \\\text { Production Lot Size }\end{array} \\\hline 1 & 75,000 & \$ 925,800 & 20 \\\hline 2 & 90,000 & 843,875 & 19 \\\hline 3 & 65,000 & 910,125 & 24 \\\hline 4 & 80,000 & 946,000 & 19 \\\hline 5 & 55,000 & 879,000 & 24 \\\hline 6 & 50,000 & 825,000 & 18 \\\hline 7 & 85,000 & 960,000 & 22 \\\hline 8 & 105,000 & 1,053,500 & 25 \\\hline 9 & 102,000 & 1,020,000 & 23 \\\hline 10 & 68,000 & 905,000 & 20 \\\hline 11 & 75,000 & 938,000 & 22 \\\hline 12 & 95,000 & 995,000 & 24 \\\hline\end{array}$$
Regression analysis results of the information presented above are as follows:
Ordinary regression:

$$\begin{array} { | l | l | } \hline \text { Equation: } & \$ 691,741 + \$ 3.0692 \times \text { units } \\\hline \text { r-square: } & .628 \\\hline\end{array}$$
Multiple regression:
$$\begin{array} { | l | l | } \hline \text { Equation: } & \$482,172 + \$2.4918 \times \text { units } +\$11,770.939 \times \text {lot size} \\\hline \text { r-square: } & .777 \\\hline\end{array}$$
Required:
(a. )Use the results from the ordinary regression and estimate next month's manufacturing overhead costs,assuming the company is planning to produce 92,000 units.(final answer should be rounded to the nearest whole dollar)
(b. )Use the results from the multiple regression and estimate the next month's manufacturing costs,assuming the company is planning to produce 92,000 units with an average lot size of 21.(final answer should be rounded to the nearest whole dollar)
(c. )Comment on which regression seems to be more appropriate under these circumstances.What additional information would you like to see? Be specific.

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Definitions:

Monopolistically Competitive

A market structure characterized by many firms offering similar but not identical products, leading to competition based on product differentiation.

Typical Firm

A typical firm refers to an average or representative entity in an industry characterized by the industry's common practices, production processes, and competitive strategies.

Consumer Surplus

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Monopolistically Competitive Price

Refers to the price level set by firms in a monopolistically competitive market, where many firms sell products that are differentiated from one another and not perfect substitutes.