Reference no: EM132628996

Jill Jackson collects the following data to identify cost drivers of distribution costs at Saratoga Corporation. Distribution costs include the costs of organizing shipments and moving packaged units. Jackson thinks that because the product is heavy, the number of units moved will affect distribution costs significantly, but she is uncertain.

Jackson estimates the following regression equations for each cost driver:

(a) y =$1349 +$.496x, where x = number of packaged units moved

(b) y =$10417 +$63.77x, where x = number of shipments made (Note: The dependent variable y = total distribution costs.)·

Required:

Problem 1. Evaluate each cost driver based on the following criteria: economic plausibility, goodness of fit, and slope. Based on this analysis, which cost driver do you think Jill Jackson should use?

Problem 2. Jackson forecasts that 50,000 units in 190 shipments will be made next month. Using each of the regression equations above, what are forecasted variable and fixed overhead costs? (Be sure to clearly identify FC vs VC.) Why do these amounts differ?

Problem 3. Overall, what insights do the analyses provide about controlling distribution costs at Saratoga Corporation?