Chapter 3, Problem 5CE

Refer to Cornerstone Exercise 3.4 for data on Dohini Manufacturing Company’s purchasing cost and number of purchase orders.

The controller for Dohini Manufacturing ran regression on the data, and the coefficients shown by the regression program are:

Required:

1. 1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate.
2. 2. If Dohini Manufacturing Company estimates that next month will have 430 purchase orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.)
3. 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders? What will estimated total purchasing cost be? (Round your answer to the nearest dollar.) What is the total fixed purchasing cost? Why doesn’t it equal the fixed cost calculated in Requirement 1?