Chapter 3, Problem 7CE

The controller for Dohini Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He collected data on the number of nonstandard orders for the past 12 months and added that information to the data on purchasing cost and total number of purchase orders.

Multiple regression was run on the above data; 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 total purchase orders and 45 nonstandard 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 and 580 nonstandard orders? What will estimated total purchasing cost be? What is the total fixed purchasing cost? Why doesn’t it equal the fixed cost calculated in Requirement 2? (Round your answers to the nearest dollar.)