Question 1

Doran Products had costs of $950,000 when sales equaled 55,000 units. When sales increased to 85,000 units, total costs increased to $1,400,000. The selling price is $21 per unit.
Required:
(a.) Determine the fixed and variable portions of total costs.
(b.) Prepare a contribution margin income statement for a month with sales of 70,000 units.

Accepted Answer

The answer of Doran Products had costs of $950,000 when...

Question 2

The Norcross Company has traditionally estimated manufacturing overhead costs using production volume. Some of the production managers believe that the number of setups may also have an impact on monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and number of setups for 2020.
 $$\begin{array} { c c c r } 
\text { Month } & \begin{array} { c } 
\text { Production } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Manufacturing } \
\text { Overhead Cost }
\end{array} & \begin{array} { c } 
\text { Number } \
\text { of Setups }
\end{array} \
1 & 50,000 & \$ 800,100 & 17 \
2 & 65,000 & 752,500 & 16 \
3 & 40,000 & 795,100 & 21 \
4 & 55,000 & 822,750 & 16 \
5 & 30,000 & 771,225 & 21 \
6 & 25,000 & 706,200 & 15 \
7 & 60,000 & 843,000 & 19 \
8 & 80,000 & 935,200 & 22 \
9 & 77,000 & 901,750 & 20 \
10 & 43,000 & 786,400 & 17 \
11 & 50,000 & 819,600 & 19 \
12 & 70,000 & 880,900 & 21
\end{array}$$ 
Regression analysis results of the information presented above are as follows:
Ordinary regression:
Equation: $650,398 + $3.1061 × units
r-square: .707
Multiple regression:
Equation: [$464,481 + ($2.5356 × units)] + [($11,631.6048 × number of set ups)]
r-square: .867
Required:
(a.) Use the results from the ordinary regression and estimate next month's manufacturing overhead costs, assuming the company is planning to produce 75,000 units. (final answer should be rounded to the nearest whole dollar)
(b.) Use the results from the multiple regression and estimate the next month's manufacturing overhead costs, assuming the company is planning to produce 75,000 units with 18 set ups. (final answer should be rounded to the nearest whole dollar)
(c.) Comment on which regression seems to be more appropriate under these circumstances. What additional information would you like to see? Be specific.

Accepted Answer

The answer of The Norcross Company has traditionally estimated manufacturing...

Question 3

The Feline Company has been having some difficulties estimating its manufacturing overhead costs. In the past, manufacturing overhead costs have been related to production levels. However, some production managers have indicated that the size of their production lots might also be having an impact on the amount of their monthly manufacturing overhead costs. In order to investigate this possibility, the company collected information on its monthly manufacturing overhead costs, production in units, and average production lot size for 2020.
 $\begin{array}{lllll}
&&& \text {Average }\
&&& \text {Monthly}\
& \text { Production } & \text { Manufacturing } & \text { Production } \
\text { Month } & \text { (Units) } & \text { Overhead Cost } & \text { Lot Size }\
1 & 75,000&  \$ 25,800 &20 \
2 & 90,000 &  843,875 & 19 \
3 & 65,000 &  910,125 & 24 \
4 & 80,000&  946,000 & 19 \
5 & 55,000 & 879,000 & 24\
6 & 50,000 & 825,000 & 18 \
7 & 85,000& 960,000 & 22 \
8 & 105,000& 1,053,500 & 25 \
9 & 102,000& 1,020,000& 23 \
10 & 68,000& 905,000 & 20 \
11 & 75,000 & 938,000 & 22 \
12 & 95,000 & 995,000 & 24
\end{array}$
 
Regression analysis results of the information presented above are as follows:
Ordinary regression:
 $$\begin{array} { | l | l | } 
\hline \text { Equation: } & \$ 691.741 + \$ 3.0692 \times \text { units } \
\hline \text { r-square: } & 0.628 \
\hline
\end{array}$$ 
Multiple regression:
 $$\begin{array} { | l | l | l | } 
\hline \text { Equation: } & \$ 482,172 + \$ 2.4918 \times \text { units } + \$ 1.770 .939 \times \text { lot size } \
\hline \text { r-square: } & 0.777\
\hline 
\end{array}$$ 
Required:
(a.) Use the results from the ordinary regression and estimate next month's manufacturing overhead costs, assuming the company is planning to produce 92,000 units. (final answer should be rounded to the nearest whole dollar)
(b.) Use the results from the multiple regression and estimate the next month's manufacturing costs, assuming the company is planning to produce 92,000 units with an average lot size of 21. (final answer should be rounded to the nearest whole dollar)
(c.) Comment on which regression seems to be more appropriate under these circumstances. What additional information would you like to see? Be specific.

Accepted Answer

The answer of The Feline Company has been having some...

Question 4

The Wonder Drug Company's total overhead costs at various levels of activity are presented below:
 $$\begin{array} { l c c } 
& \text { Direct Lubor } \
\text { Month } & \text { Hours } & \text { Total Overhead } \
\text { Septernber } & 15,00 0& \$ 472,000 \
\text { October } & 12,00 0& 409,400 \
\text { Novernber } & 18,00 0& 542,000 \
\text { Decernber } & 21,000 & 604,700
\end{array}$$ 
Assume that the overhead costs above consist of indirect labor, scheduling salaries, and maintenance. The breakdown of these costs for the month of November is as follows:
Indirect labor (V) $219,600
Maintenance (M) 197,400
Scheduling Salaries (F) 125,000
$542,000
Required:
(a.) Using the high-low method, determine the cost formula for maintenance.
(b.) Express the company's total overhead costs in linear equation form.

Accepted Answer

The answer of The Wonder Drug Company's total overhead costs...

Question 5

Markham, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/hour. The following factors are available for various rates of learning: 80% learning, b = ?0.3219; 85%, b = ?0.2345; 90%, b = ?0.1520; 95%, b = ?0.0740.
Required:
(a.) What will the total labor cost be for the contract?f
(b.) What will be the total fee for the contract?

Accepted Answer

The answer of Markham, Inc. has received a contract for...

Question 6

When using past data to predict a cost that has fixed and variable components, it is possible to have an equation with a negative intercept. Does this mean that at a zero production level, the company will make money on its fixed costs? Explain.

Accepted Answer

The answer of When using past data to predict a...

Question 7

Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below:
 $\begin{array}{lcc}
\text {Month}&\text {Units Produced}&\text {Administrative Costs}\
\text { January } & 32,500 & \$24,288 \
 \text { February } & 37,700 &27,720 \
 \text { March } & 24,700 &17,820 \
\text { April } & 40,300 &30,360 \
 \text { May } & 49,400 &37,290 \
 \text { June } & 42,900 &29,040 \
\text { July } & 53,300 &32,670 \
 \text { Alugust } & 45,500 &30,030 \
 \text { September } & 26,000 &20,460 \
\text { October } & 48,100 & 34,320\
 \text { November } & 61,100 &40,920 \
 \text { December } & 54,600 &36,630 \
\end{array}$
 
 $$\begin{array}{c}
 { \text { SUMMARY OUTPUT } } \
 { \text { Regrerrian Statirticr } } \
\begin{array} { | l | r | } 
\hline \text { Multiple R } & 0.96538 \
\hline \text { R Squjare } & 0.931965 \
\hline \text { Adjusted R-Square } & 0.925162 \
\hline \text { Starddard Error } & 1,881.23 \
\hline \text { Observations } & 12 \
\hline
\end{array}\end{array}$$ 
 $$\begin{array} { | l | r | r | r | r | r | r | } 
\hline & \text { Coefficiend } & \begin{array} { c } 
\text { Standard } \
\text { Error }
\end{array} & \text { t Stat } & \text { P-valke } & \begin{array} { c } 
\text { Lower } \
\text { 95\% }
\end{array} & \text { Upper 95\% } \
\hline \text { Irtercept } & 4,919.48 & 2,221.329 & 2.21 & 0.051156 & - 29.9485 & 9,868.909 \
\hline \begin{array} { l } 
\text { Units } \
\text { produced }
\end{array} & 0.586154 & 0.050082 & 11.70 & 3.69 \mathrm { E } - 07 & 0.474560 & 0.697743 \
\hline
\end{array}$$ 
Required:
(a.) What is the equation for administrative costs using the regression analysis?
(b.) Does the variable "units produced" have statistical significance? Explain.
(c.) Prepare an estimate of administrative costs for a month when 30,000 units are produced.

Accepted Answer

The answer of Yates Corp. wants to develop a cost...

Question 8

Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
 $\begin{array}{llll}
&&\text { Utility } \
\text { Month } & \text { Machine Hours } & 
 \text { Costs }\
\text { January } & 3,250& \$ 2,080 \
\text { February } & 3,77 0 & 25,200 \
\text { March } & 2,470 & 16,200 \
\text { April } & 4,030 & 27,600 \
\text { May } & 4,940 & 33,900 \
\text { June } & 4,290 & 26,400 \
\text { July } & 5,330 & 29,700 \
\text { August } & 4,550 & 27,300 \
\text { September } & 2,600 & 18,600 \
\text { October } & 4,810 & 31,200 \
\text { November } & 6,110 & 37,200 \
\text { December } & 5,460& 33,300
\end{array}$

Required:
(a.) What is the equation for utility costs using the high-low method?
(b.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.

Accepted Answer

The answer of Clough Company is interested in establishing the...

Question 9

Market Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
 $\begin{array}{|c|c|}
\hline \text { Units Produced } & \text { Marginal Labor Time } \
\hline 1 & 250.00 \
\hline2 & 225  \
\hline
\end{array}$
 
Required:
(a.) How much time will be needed to complete the 4th unit?
(b.) How much time will be needed to complete the 8th unit?
(c.) How much time will be needed to complete the 16th unit?

Accepted Answer

The answer of Market Products, Inc., has found that new...

Question 10

Barnard Enterprises had an average cost of $8.60 during a month when 75,000 units were produced. When production was 125,000 units several months later, the average cost dropped to $6.98.
Required:
(a.) Determine the fixed and variable portions of production costs.
(b.) What will unit cost be when production equals 110,000 units?

Accepted Answer

The answer of Barnard Enterprises had an average cost of...

Question 11

Argo Company ran a regression analysis using direct labor hours as the independent variable and manufacturing overhead costs as the dependent variable. The results are summarized below:
 $$\begin{array} { l c c } 
\text { Intercept } & \$ 14,600 \
\text { Slope } & \$  12.55 \
\text { Correlation coefficient } & 0.931 \
\text { R-squared } & 0.867
\end{array}$$ 
Argo is planning on operating at a level that would require 12,000 direct labor hours per month in the upcoming year.
Required:
(a.) Use the information from the regression analysis to write the cost estimation equation for the manufacturing overhead costs.
(b.) Compute the estimated manufacturing overhead costs per month for the upcoming year.

Accepted Answer

The answer of Argo Company ran a regression analysis using...

Question 12

New Venture, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 20%. New Venture found that the first unit of a new product required 120 hours to complete. The second unit was completed using only 114 hours. New Venture believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $25/hour. The following factors are available for various rates of learning: 80% learning, b = -0.3219; 85%, b = -0.2345; 90%, b = -0.1520; 95%, b = -0.0740.
Required:
(a.) What will the total labor cost be for the contract?
(b.) What will the total fee be for the contract?

Accepted Answer

The answer of New Venture, Inc. has received a contract...

Question 13

Yates Corp. wants to develop a cost equation for its administrative costs. The controller believes the appropriate cost driver is units produced. Last year's data are presented below:
 $\begin{array}{lcc}
\text {Month}&\text {Units Produced}&\text {Administrative Costs}\
\text { January } & 32,500 & \$24,288 \
 \text { February } & 37,700 &27,720 \
 \text { March } & 24,700 &17,820 \
\text { April } & 40,300 &30,360 \
 \text { May } & 49,400 &37,290 \
 \text { June } & 42,900 &29,040 \
\text { July } & 53,300 &32,670 \
 \text { Alugust } & 45,500 &30,030 \
 \text { September } & 26,000 &20,460 \
\text { October } & 48,100 & 34,320\
 \text { November } & 61,100 &40,920 \
 \text { December } & 54,600 &36,630 \
\text { Total } & 516,100&\$361,548 \
 \text { Average } & 43,008 &\$30,129\
\end{array}$ 
Required:
(a.) What is the equation for administrative costs using the high-low method?
(b.) Prepare an estimate of administrative costs for a month when 30,000 units are produced.

Accepted Answer

The answer of Yates Corp. wants to develop a cost...

Question 14

The Ornate Company produces a single product and has total costs ranging from $321,875 (at 20,000 units) to $966,875 (at 80,000 units). Sales volume in 2020 was 32,000, and operating income was $45,125. Ornate's product is highly specialized; therefore, no units are kept in inventory.
Required:
(a.) Determine the cost equation for Ornate's costs.
(b.) Prepare a contribution margin income statement for 2020 including separate columns for total dollars, per unit dollars, and percentages.
(c.) Determine the break-even point (in units and in dollars).

Accepted Answer

The answer of The Ornate Company produces a single product...

Question 15

Iowa Enterprises had an average cost of $10.75 during a month when 50,000 units were produced. When production doubled several months later, the average cost dropped to $8.25.
Required:
(a.) Determine the fixed and variable portions of production costs.
(b.) What will unit cost be when production equals 80,000 units?

Accepted Answer

The answer of Iowa Enterprises had an average cost of...

Question 16

Describe the engineering method of cost estimation. Provide two advantages and two disadvantages associated with the engineering approach to cost estimation.

Accepted Answer

The answer of Describe the engineering method of cost estimation....

Question 17

Clough Company is interested in establishing the relationship between utility costs and machine hours. Data have been collected and a regression analysis prepared using Excel. The monthly data and the regression output follow:
 $\begin{array}{llll}
&&\text { Utility } \
\text { Month } & \text { Machine Hours } & 
 \text { Costs }\
\text { January } & 3,250& \$ 2,080 \
\text { February } & 3,77 0 & 25,200 \
\text { March } & 2,470 & 16,200 \
\text { April } & 4,030 & 27,600 \
\text { May } & 4,940 & 33,900 \
\text { June } & 4,290 & 26,400 \
\text { July } & 5,330 & 29,700 \
\text { August } & 4,550 & 27,300 \
\text { September } & 2,600 & 18,600 \
\text { October } & 4,810 & 31,200 \
\text { November } & 6,110 & 37,200 \
\text { December } & 5,460& 33,300
\end{array}$
 
 $$\begin{array}{c}
\text { SUMMMARY OUTPUT}\
\text { Regression Statistics}\
\begin{array} { l r } 
\text { Multiple R } &96.5 \% \
\text { R Square } &93.2 \%  \
\text { Adjusted R-Square } &92.5 \%  \
\text { Starndard Eror } &   1,710.21\
\text { Obserrations } & 12.00 \
\end{array}
\end{array}$$ 
 $\begin{array}{|l|r|r|r|r|r|r|}
\hline && \text { Standard } & && \text { Lower } & \text { Upper } \
&\text { Coefficients } & \text { Error } & \text { t Stat } & \text { P-value } & 95 \% & 95 \% \ 
\hline \text { Intercept } & 4,472.26 & 2,019.39 & 2.21 & 0.051 & -27.23 & 8971.74 \
\hline \text { Machine } & 5.329 & 0.455 & 11.70 & 3.69 \mathrm{E}-07 & 4.314 & 6.343 \
\hline 
\end{array}$

Required:
(a.) What is the equation for utility costs using the regression analysis?
(b.) Does the variable "machine hours" have statistical significance? Explain.
(c.) Prepare an estimate of utility costs for a month when 3,000 machine hours are worked.

Accepted Answer

The answer of Clough Company is interested in establishing the...

Question 18

Washington Products had costs of $600,000 when sales equaled 75,000 units. When sales increased by 25,000 units, costs increased by $125,000. The selling price is $9 per unit.
Required:
(a.) Determine the fixed and variable portions of costs.
(b.) Prepare a contribution margin income statement for a month with sales of 80,000 units.

Accepted Answer

The answer of Washington Products had costs of $600,000 when...

Question 19

Below are several examples of costs that are labeled fixed or variable according to their typical accounting designations. Under which circumstances would any of these costs behave in a manner opposite to that listed?
a. Direct labor-variable.
b. Equipment depreciation-fixed.
c. Utilities (with a minimum charge)-variable.
d. Supervisory salaries-fixed.
e. Indirect materials purchased in given lot sizes that become spoiled within a few days-variable.

Accepted Answer

The answer of Below are several examples of costs that...

Question 20

Woodman Products, Inc., has found that new products follow a learning curve. The first two units have been completed with the following results:
 $$\begin{array} { | r | r | } 
\hline \text { Units Produced } & \text { Marginal Labor Time } \
\hline 1 & 112.50 \
\hline 2 & 90.00 \
\hline
\end{array}$$
 
Required:
(a.) How much time will be needed to complete the 4th unit?
(b.) How much time will be needed to complete the 8th unit?
(c.) How much time will be needed to complete the 16th unit?

Accepted Answer

The answer of Woodman Products, Inc., has found that new...

Quiz 5: Cost Estimation

When using past data to predict a cost that has fixed and variable components, it is possible to have an equation with a negative intercept. Does this mean that at a zero production level, the company will make money on its fixed costs? Explain.

Describe the engineering method of cost estimation. Provide two advantages and two disadvantages associated with the engineering approach to cost estimation.