Part 1 - Industries Inc. manufactures 2 products: A and B. A review of the company's accounting records revealed the following per-unit costs and production volume:
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Product A
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Product B
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Production volume(units)
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3000
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5000
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Direct labor hours used
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2
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3
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Direct material cost per unit
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$30
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$50
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Direct Labor cost: $14 per hour
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2 hours at $14
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$28
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3 hours at $14
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$72
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Manufacturing overhead
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2 hours at $82
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$164.00
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3 hours at $82
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$246
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Manufacturing overhead is budgeted at :
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$1,722,000
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Required:
a. Using direct labor hours as the base for assigning manufacturing overhead cost to products, compute the direct labor needed and the predetermined overhead rate using direct labor hours.
b. Using the predetermined overhead rate you determined in "a" above, determine the unit product cost of each product.
c. You are a recent hire to Industries Inc. and you have made it known that you just recently completed an MBA program that had a management accounting course that taught you about another costing system that might be appropriate. During a meeting, you suggested that an ABC system might be a more accurate costing system. Management has asked you to recompute the unit cost using the ABC costing approach, since the company is showing declining profits. First complete the following chart that is set up like exhibit 5-7 on page 177, and there is a more detailed explanation of the 3 step calculation approach example on page 176 exhibit 5-6. I have highlighted the columns in red you need to complete and I have started the table to guide you.
d. Complete the following table to determine the unit product costs from ABC, just like the exhibit 5-8 on page 178.
e. Write a short report (at least 75 words) that identifies factors that may account for the company's declining profits.
Part 2 -
Please make sure you have reviewed the demonstration in the Course Documents area for chapter 6 before attempting this problem. I have an audio step by step excel explanation of multiple regression, simple regression, and the scattergraph. If you have a dial up modem this could take awhile to download. I do have a word tutorial and my excel solution is also available in the course documents area. You need to have the data analysis tool available.
It would be good practice for you to try to prepare the demonstration problem using my tutorial before attempting to solve this problem.
This project focuses on chapter 6, but ties in chapter 5 by trying to choose an independent variable that relates to the cost we are trying to measure.
Food services company is looking at the costs involved with their catering services.
In the past the company has used meals produced as the cost driver for Overhead costs, but you have been recently hired as a consultant and have decided to use your new MBA skills to make a recommendation to management on what should be the cost driver(s) for overhead costs. You have decided to include number of deliveries in your analysis, too.
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Month
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Deliveries
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Meals
produced
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Total
Overhead
Cost
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1
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1,340
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12,690
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$69,094
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2
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1,180
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11,980
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64,927
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3
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1,050
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10,950
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60,332
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4
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930
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10,280
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57,953
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5
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840
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9,020
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55,984
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6
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780
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8,130
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53,119
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7
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700
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7,540
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52,706
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8
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630
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6,980
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53,874
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9
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680
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8,930
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53,445
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10
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760
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9,800
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54,869
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Required:
1. Prepare 2 scattergraphs and 2 simple regression analyses***** to estimate the Overhead costs using each of the cost drivers above.
2. Prepare a multiple regression table the 2 independent variables-Deliveries and meals produced. Do not try to prepare a scattergraph, since you can make a chart with multiple X's.
Using the output from the multiple regression, give the equation to estimate overhead costs in terms of these 2 cost drivers. Excel reads left to right, so X1 will be Deliveries and X2 will be meals produced.
3. Assuming the following level of cost-driver volume, what is the estimated overhead cost using simple regression for each of the cost drivers and using multiple regression to estimate the cost of overhead. You should have 3 computations for this answer (you need to determine 2 since I have calculated the first one for you). Your calculation should only use cell references, since you should be estimated the cost by referencing the cost drivers below and the output from the regression tables.
4. Using the simple and multiple regression analyses above, what would you recommend to estimate the Overhead Costs? Why? Make sure you discuss the Coefficient of Determination in your response. Your comments should be at least 75 words.
Attachment:- Assignment File.rar