Isla Esme, Inc., sells tea products to various customers. In recent years, profits have been declining. The CFO of the business investigated the reasons for the profit decline and performed regression analysis for sales and costs. He determined that sales depend on product price, delivery speed, customer services, and marketing expenses. He also determined that total costs consist of variable costs of $25 per unit and fixed costs of $56,000. Marketing expenses have a coefficient of determination of 75% related sales. Question: If Isla Esme, Inc. produces 5000 units of output, what is the total cost?

Isla Esme, Inc., sells tea products to various customers. In recent years, profits have been declining. The CFO of the business investigated the reasons for the profit decline and performed regression analysis for sales and costs. He determined that sales depend on product price, delivery speed, customer services, and marketing expenses. He also determined that total costs consist of variable costs of $25 per unit and fixed costs of $56,000. Marketing expenses have a coefficient of determination of 75% related sales. Question: If Isla Esme, Inc. produces 5000 units of output, what is the total cost?

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 18E

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ABC, Inc., sells tea products to various customers. In recent years, profits have been declining. The CFO of the company investigated the reasons for the profit decline and performed regression analysis for sales and costs. She determined that sales depend on product price, delivery speed, customer services, and marketing expenses. She also determined that total costs consist of variable costs of $25 per unit and fixed costs of $56,000. Marketing expenses have a coefficient of determination of 75% related sales. If ABC, Inc. produces 50,000 units of output, what is the total cost?
ABC, Inc., sells tea products to various customers. In recent years, profits have been declining. The CFO of the company investigated the reasons for the profit decline and performed regression analysis for sales and costs. She determined that sales depend on product price, delivery speed, customer services, and marketing expenses. She also determined that total costs consist of variable costs of $25 per unit and fixed costs of $56,000. Marketing expenses have a coefficient of determination of 75% related sales. Question Express the relationship between total costs and variable costs for ABC, Inc., using a regression equation. Explain each element of the equation.
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