\"Green Buddy Investors\" got loan of $10 million to build a green plant to prod
ID: 388948 • Letter: #
Question
"Green Buddy Investors" got loan of $10 million to build a green plant to produce solar panels called Solyndre. They promised the Solyndre plant would use "state of the art" technology to produce the solar panels at a variable cost of $30 per unit. The plant itself was supposed to cost $10,000 per month in fixed costs. The plant has now been operating 14 months. The accounting department tallied up all costs for the plant each month and also the number of units produced as shown in the table below. Use regression analysis to see if the plant is producing the way it was supposed to. That is, what are its actual fixed costs and its variable costs per unit? Do they match the promises in terms of fixed and variable costs? Month Units Produced Monthly Plant cost 1 1260 $123,118 2 1007 $99,601 3 1296 $132,000 4 873 $80,000 5 532 $52,000 6 476 $58,625 7 482 $74,624 8 1273 $110,000 9 692 $81,000 10 690 $73,507 11 564 $95,024 12 470 $88,004 13 675 $70,000 14 870 $110,253 "Green Buddy Investors" got loan of $10 million to build a green plant to produce solar panels called Solyndre. They promised the Solyndre plant would use "state of the art" technology to produce the solar panels at a variable cost of $30 per unit. The plant itself was supposed to cost $10,000 per month in fixed costs. The plant has now been operating 14 months. The accounting department tallied up all costs for the plant each month and also the number of units produced as shown in the table below. Use regression analysis to see if the plant is producing the way it was supposed to. That is, what are its actual fixed costs and its variable costs per unit? Do they match the promises in terms of fixed and variable costs? Month Units Produced Monthly Plant cost 1 1260 $123,118 2 1007 $99,601 3 1296 $132,000 4 873 $80,000 5 532 $52,000 6 476 $58,625 7 482 $74,624 8 1273 $110,000 9 692 $81,000 10 690 $73,507 11 564 $95,024 12 470 $88,004 13 675 $70,000 14 870 $110,253Explanation / Answer
Let the regression equation is :
Y = a + b.X
Y (dependent variable ) = Forecasted value of monthly plant cost
X = Units produced
A, b = Constants ( where we can sat that A stands for the fixed cost and b stans for the variable cost / unit )
We place all the values of X and Y in 2 adjacent column in excel and apply the formula LINEST ( ) to derive the actual values of a and b .
Accordingly values of a and b as follows :
The derived variable cost / unit
A= 37894.09
B = 64.27
Therefore ,
The derived value of fixed cost is $37894.09 against an expected value of $10,000 . This derived value is 278% more than the expected
The derived variable cost / unit of $64.27/ unit is against an expected value of $30/ unit. This derived value is 114% more than the expected value.
We can therefore conclude that actual values of fixed and variable costs are nowhere near the expected values.
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