Required:
1. Separate overhead into fixed and variable components using regression analysis. Run three regressions, using the following independence variables: (a) number of setups, (b) number of machine hours, and (c) a multiple regression using both number of setups and machines. Which regression equation is best? Why?
2. Using the results from (1) above, calculate the number of boxes of pasta which must be sold to break even before the expansion into the production of sauces.
3. Now consider the production of sauces. Using the results of multiple regression equation, calculate the break-even number of boxes of pasta and jars of sauce.
4. Suppose that the production manager is wrong and that the number of setups doubles. Calculate the new break-even number of boxes of pasta and jars of sauce.
5. Refer to the original data. Suppose that only 30 jars of sauce can be produced per machine hour and that Sorrentino Company will sell 3 boxes of pasta for every one jar of sauce. Calculate the new break-even number of boxes of pasta and jars of sauce.
6. Explain how uncertainty in the sales mix and in cost estimates affect the break-even points for Sorrentino Company.