Complete a three-part assessment in a supplied Excel template in which you apply regression analysis to decision making, determine unit costs, and analyze overhead using a predetermined rate.
Introduction
Cost estimation involves the use of a familiar accounting and finance tool: cost/benefit analysis. Through cost/benefit analysis, managers can explore and evaluate multiple alternatives to choose the one most beneficial to the organization’s bottom line. When evaluating alternatives, it is imperative that comparisons are “apples to apples;” that is, when estimating costs across multiple alternatives, cost data must be expressed in terms of variable and fixed costs, along with the drivers of these costs.
In Assessment 2, you will present information about estimating costs using multiple analysis methods, such as account analysis, statistical analysis, and regression output. Upon completion of this assessment, you will have demonstrated an understanding of the role that cost estimation plays in capturing and using existing accounting information for decision making by managers.
This assessment includes alternative cost systems, beginning with product and service costs.
Before beginning this assessment, take time to review the following topics:
Regression analysis.
Operations costing.
Overhead analysis.
Complete a three-part assessment in a supplied Excel template, applying regression analysis to decision making, determining unit costs, and analyzing overhead using a predetermined overhead rate.
Preparation
Use the Assessment 2 Template [XLSX] to complete the following. Each part is a different tab in the template.
Part 1: In the template, interpret regression results from the delivery company.
Compare your estimates to the controller’s estimates and state your reasons for supporting or rejecting your cost equation.
Write a one-page report informing management of the correct volume that will generate $11,000 per month in operating profits before taxes.
Show all calculations.
Part 2: Compute the cost per unit of the two different models of calculators produced by Nevada Instruments based on the operations costing. Show all calculations.
Part 3: Complete calculations and analysis of overhead using a predetermined rate for Atchison Company. Show all calculations.
Submit the completed template for Assessment 2.
Instructions
Assessment 2 Part 1: Interpretation of Regression Results
Part 1 Scenario
Your company provides various delivery services. Management wants to know the volume of a particular delivery that would generate $11,000 per month in operating profits before taxes. The company charges $22 per delivery.
The controller’s office has estimated overhead costs at $9,900 per month for fixed costs and $12 per delivery for variable costs. You believe that the company should use regression analysis. Your analysis shows the results to be:
Monthly overhead=$26,501+$10.70 per delivery.
Your estimate was based on the following data:
Data Used for Estimate
Month
Overhead Costs
Number of Deliveries
1
$159,630
$12,510
2
$183,990
$15,060
3
$142,860
$11,430
4
$194,430
$15,450
5
$151,890
$12,180
6
$150,120
$11,970
7
$192,600
$15,660
8
$154,080
$12,630
9
$141,030
$11,250
10
$184,800
$15,300
11
$203,490
$12,780
12
$183,120
$14,580
13
$180,630
$14,730
Complete the following:
The company controller is somewhat surprised that your cost estimates differ so greatly from the controller’s estimates. You have been asked to recheck your work and see if you can figure out why.
Analyze the data and your results and state your reasons for supporting or rejecting your cost equation. Show all calculations.
Write a one-page report informing management of the correct volume that will generate $11,000 per month in operating profits before taxes. The report should include an introduction, operating cost summary, proposed volume to generate desired operating profits before taxes, and a conclusion.
Assessment 2 Part 2: Operations Costing
Compute the cost per unit of the two different models of calculators produced by Nevada Instruments based on the operations costing. Show all calculations.
Part 2 Scenario
Nevada Instruments manufactures two models of calculators. The finance model is the Financial 5 and the scientific model is the Scientific 6. Both models are assembled in the same plant and require the same assembly operations. The difference between the models is in the cost of the parts.
The following data are available for August:
Nevada Instruments: August data
Financial 5
Scientific 6
Total
Number of Units
11,000
44,000
55,000
Parts Cost Per Unit
$25
$30
Other Costs:
Direct Labor
$68,200
Indirect Materials
$19,250
Overhead
$17,550
Total
$165,000
Complete the following:
Nevada Instruments uses operations costing and assigns conversion costs based on the number of units assembled. Compute the cost per unit of the Financial 5 and Scientific 6 models for August. Show all calculations.
Assessment 2 Part 3: Analysis of Overhead Using a Predetermined Rate
Complete calculations and analysis of overhead using a predetermined rate for Atchison Company. Show all calculations.
Part 3 Scenario
Atchison Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows:
Atchison Company: Estimate of Overhead Costs
Item
Volume 1
Volume 2
Volume 3
Direct Labor-Hours
150,000
180,000
210,000
Variable Overhead Costs
$1,155,000
$1,386,000
$1,617,000
Fixed Overhead Costs
$712,800
$712,800
$712,800
Total Overhead
$1,867,800
$2,098,800
$2,329,800
The expected volume is 180,000 direct labor-hours for the entire year. The following information is for September, when Jobs 6023 and 6024 were completed:
Atchison Company: September Data
Item
Value
Inventories, September 1:
Materials and Supplies
$31,500
Work in Process (Job 6023)
$162,000
Finished Goods
$337,500
Material and Supply Purchases:
Materials
$445,500
Supplies
$49,500
Materials and Supplies Requisitioned for Production:
Job 6023
$148,500
Job 6024
$123,750
Job 6025
$84,150
Supplies
$19,800
$376,200
Factory Direct Labor-Hours (DLH):
Job 6023
$10,500
Job 6024
$9,000
Job 6025
$6,000
Labor Costs:
Direct Labor Wages (all hours @ $9)
$229,500
Indirect Labor Wages (12,000 hours)
$51,000
Supervisor Salaries
$118,800
Building Occupancy Costs (heat, light, depreciation, etc.):
Factory Facilities
$21,450
Sales and Administrative Offices
$8,250
Factory Equipment Costs:
Power
$13,200
Repairs and Maintenance
$4,950
Other
$8,250
$26,400
Complete the following:
Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.
(Note: Regardless of your answer to #1, assume that the predetermined overhead rate is $10 per direct labor-hour. Use this amount in answering items 2–6.)
Compute the total cost of Job 6023 when it is finished.
How much factory overhead cost was applied to Job 6025 during September?
What total amount of overhead was applied to jobs during September?
Compute actual factory overhead incurred during September.
At the end of the year, Atchison Company had the following account balances:
Atchison Company: Account Balances
Item
Value
Overapplied Overhead
$3,300
Cost of Goods Sold
$3,234,000
Work-in-Process Inventory
$125,400
Finished Goods Inventory
$270,600
How would you recommend treating the overapplied overhead, assuming that it is not material? Show the new account balances in the following table:
Atchison Company: New Account Balances
Item
Value
Overapplied Overhead
Cost of Goods Sold
Work-in-Process Inventory
Finished Goods Inventory
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
Competency 2: Apply cost accounting concepts to analyze and estimate costs.
Explain justification for supporting cost equation.
Determine cost per unit.
Determine applied factory overhead cost and actual factory overhead cost.
Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.