Case - Performance Drinks -A further study of: Regression Analysis
Background:
Performance Drinks, LLC is owned by Dave N. Port. Performance Drinks produces a variety of sports centered drinks. They began operations in 1993 shortly after Mr. Port graduated with his M.B.A. from Davenport University. The company saw early success as sports and fitness nutritional products gained new popularity in the 1990's. Financially the company is sound and has been wise in controlling their growth over the years. However, within the last 18 months Mr. Port has noticed a drop in overall company profitability. This is especially troubling considering that the company has continued to experience top-line growth. Mr. Port and his management team have been considering developing a new product line. However, those plans have been put on hold until they can figure out why their profits are shrinking.
Performance Drinks makes four different kinds of sports drinks. Those drinks are as follows:
- Basic
- Hydration
- Intensity
- Post-Workout
Each of these drinks contains a slightly different nutritional profile and is targeted for different users and uses. The Basic drink has the least nutritional benefit and is targeted for general consumption. The Hydration product targets endurance athletes and specializes in hydration replacement. The Intensity product was designed with energy enhancement in mind. It serves the needs of extreme athletes who need long durations of sustained energy. Lastly, the Post-Workout product is a nutritional replacement product that is generally used following exertion.
Requirement #1
Using the data above, which has also been provided electronically in Excel, run the following regression analyses:
- Linear regression analyzing total overhead cost and units sold
- Linear regression analyzing total overhead cost and machine hours used
- Multiple regression analysis analyzing total overhead cost along with both units sold and machine hours used
Requirement #2
Based on the results from the three regression analyses determine which correlation provides the best estimate of the total cost equation. Explain why you selected the correlation that you did.
Requirement #3
Write out the total cost equation using the results from the multiple regression test.
Requirement #4
Create a "Contribution" formatted income statement using the results from the multiple regression test. Your selling price per unit and your direct material cost per unit and your direct labor cost per unit and your fringe benefits all come from the original "Traditional" income statement. Use the following additional information regarding machine hours, used by each product, to compute variable overhead.
Reference the following sales volumes, by product, for your cost allocation related to units sold. This data will help you calculate variable overhead.
Use the following template as a guide for the format of your "Contribution" Income Statement:
Requirement #5
Compute the following:
- Break-even point in units
- Break-even point in sales dollars
- Targeted profit point in units (use $50,000 as your targeted profit point)
- Margin of Safety
Requirement #6
A new customer has surfaced. That customer has asked you to consider producing a special one-time order for them. This special order would require a modification to the recipe that will slightly increase the variable cost per unit. Furthermore, there would be a small fixed cost addition. The details for the order as follows:
Conduct a differential analysis regarding this special order. Would you accept this order under the conditions provided? Explain and defend your position.
Requirement #7:
Your management team has asked you to consider investing in a new piece of equipment. The details of that investment opportunity are following:
The discount rate for this project is 5%. Compute the following:
- Net Present Value
- Internal Rate of Return
Would you recommend investing in this new piece of equipment? Explain and defend your position.
Attachment:- case performance.rar