## Answers

a) | ||||||||||

SUMMARY OUTPUT | ||||||||||

Regression Statistics | ||||||||||

Multiple R | 0.91400386 | |||||||||

R Square | 0.835403056 | |||||||||

Adjusted R Square | 0.818943362 | |||||||||

Standard Error | 16389.42803 | |||||||||

Observations | 12 | |||||||||

ANOVA | ||||||||||

df | SS | MS | F | Significance F | ||||||

Regression | 1 | 1.36E+10 | 1.36E+10 | 50.75446939 | 3.2E-05 | |||||

Residual | 10 | 2.69E+09 | 2.69E+08 | |||||||

Total | 11 | 1.63E+10 | ||||||||

Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | Lower 95.0% | Upper 95.0% | |||

Intercept | 687301.3722 | 76026.13 | 9.04033 | 3.97492E-06 | 517904.6 | 856698.2 | 517904.6 | 856698.2 | ||

X Variable 1 | 2.215592511 | 0.310995 | 7.124217 | 3.20155E-05 | 1.522654 | 2.908531 | 1.522654 | 2.908531 | ||

The minimum price Mr. Andre can offer Bunk without reducing profit any further is equal to variable cost per unit | $ 2.22 | |||||||||

b) | ||||||||||

High-low method: | ||||||||||

Variable cost estimate = (Cost at highest activity – Cost at lowest activity)/(Highest activity – Lowest activity) | ||||||||||

Corporate Revenue | Corporate Overhead Costs | |||||||||

Most recent year | 121,750,000 | 6,087,500 | ||||||||

Previous year | 77,700,000 | 5,109,590 | ||||||||

Difference | 44,050,000 | 977,910 | ||||||||

Variable cost corporate estimate = 977,910/$44,050,000 | 2.22% | of revenue | ||||||||

Let Q be number of cases sold | ||||||||||

Profit = Revenues - Variable Product Cost - Variable Corporate costs - Fixed Production Costs | ||||||||||

Profit = $6 x Q - $2.22 x Q - ($6 Q x 2.22%) - $687301.37 | ||||||||||

Break Even Point (Q) = $687301.37/ $3.65 | $ 188,239.47 | cases | ||||||||

c) | ||||||||||

Profit = $6 x Q - $2.22 x Q - ($6 Q x 5%) - $687301.37 | ||||||||||

Break Even Point (Q) = $687301.37/ $3.48 | 120,579.19 | cases | ||||||||

d) | ||||||||||

Lost Revenue | -14,704,650 | |||||||||

Product Cost Avoided | 14,447,895 | |||||||||

Loss Before corporate overhead savings | -256,755 | |||||||||

Allocated corporate costs (2.22% x 14704650) | 326,443 | |||||||||

Increase profits before Tax | 69,688 | |||||||||

Allowance for tax (@20%) | 13,938 | |||||||||

Increased Profits | 55,751 |

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