Question

The controller for Hydraulics Unlimited felt that the number of purchase orders alone did not explain the monthly purchasing cost. She knew that nonstandard orders took more time and effort. She 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 these data; the coefficients shown by the regression program are as follows:
Intercept $14,460 (rounded to the nearest dollar)
X variable 1 8.92 (rounded to the nearest cent)
X variable 2 20.39 (rounded to the nearest cent)

If Hydraulics Unlimited 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 to the nearest dollar.)

a. $19,213
b. $918
c. $4,753
d. $3,836

Answer 1

The total estimated purchasing cost for next month is approximately $19,213.

Step-by-step explanation:

To estimate the total purchasing cost for next month, we can use the multiple regression equation obtained from the data. The equation is: Cost = Intercept + (X variable 1 * Total purchase orders) + (X variable 2 * Nonstandard orders). Plug in the given values: Intercept = $14,460, X variable 1 = 8.92, X variable 2 = 20.39, Total purchase orders = 430, Nonstandard orders = 45.

Cost = $14,460 + (8.92 * 430) + (20.39 * 45)

Solving the equation, the total estimated purchasing cost for next month is approximately $19,213.