Cornerstones of Cost Management (Cornerstones Series)
3rd Edition
ISBN: 9781285751788
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 3, Problem 33P
Big Mike’s, a large hardware store, has gathered data on its overhead activities and associated costs for the past 10 months. Nizam Sanjay, a member of the controller’s department, believes that overhead activities and costs should be classified into groups that have the same driver. He has decided that unloading incoming goods, counting goods, and inspecting goods can be grouped together as a more general receiving activity, since these three activities are all driven by the number of receiving orders. The 10 months of data shown on page 134 have been gathered for the receiving activity.
Required:
- 1. Prepare a scattergraph, plotting the receiving costs against the number of purchase orders. Use the vertical axis for costs and the horizontal axis for orders.
- 2. Select two points that make the best fit, and compute a cost formula for receiving costs.
- 3. Using the high-low method, prepare a cost formula for the receiving activity.
- 4. Using the method of least squares, prepare a cost formula for the receiving activity. What is the coefficient of determination?
- 5. Prepare a 95 percent confidence interval for receiving costs when 1,200 receiving orders are expected.
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Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Suppose that
Schell has conducted further research into its overhead and potential cost drivers. As a result, the company has compiled the following
detailed information, breaking total overhead into three activity pools:
Activity Pools
Material handling
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Machine maintenance
Req 1
Cost Driver
Number of moves
Number of inspections
Number of machine hours
Req 2 and 3
Required:
1. Calculate the activity rates for each activity pool assuming Schell uses an ABC system.
2. Calculate the amount of overhead that Schell will assign to the Standard floor mat line.
3. Determine the amount of overhead Schell will assign to the Deluxe product line.
Complete this question by entering your answers in the tabs below.
Material Handling
Quality Control
Machine maintenance
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to Pool
Activity Rate
$ 2,068.00
$ 8,640.00
$ 14,120.00
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Farnsworth Company has gathered data on its overhead activities and associated costs for the past 10 months. Tracy Heppler, a member of the controller's department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows:
Month
Receiving Orders
Receiving Cost $
1
1,000
18,000
2
700
15,000
3
1,500
28,000
4
1,200
17,000
5
1,300
25,000
6
1,100
21,000
7
1,600
29,000
8
1,400
24,000
9
1,700
27,000
10
900
16,000
Assume that Tracy has used the method of least squares on the receiving data and has gotten the following results:
Intercept
3,212…
The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month:
The following table lists out the overhead cost:
Activity cost pool
Overhead cost (£)
Additional Notes
Job-order set up
33,000
Procurement and placement
360,000
Installation of winding system
195,000
An auto winding system is fitted with every watch
Quality inspection (machine)
60,000
Quality inspection (manual)
21,000
Finishing
140,000
Hand-made finishing
Packaging and delivery
44,250
The…
Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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Ch. 3 - What is meant by the best-fitting line? Is the...Ch. 3 - When is multiple regression required to explain...Ch. 3 - Explain the meaning of the learning curve. How do...Ch. 3 - Assume you are the manager responsible for...Ch. 3 - Some firms assign mixed costs to either the fixed...Ch. 3 - Callies Gym is a complete fitness center. Owner...Ch. 3 - Corazon Manufacturing Company has a purchasing...Ch. 3 - Darnell Poston, owner of Poston Manufacturing,...Ch. 3 - Dohini Manufacturing Company had the following 12...Ch. 3 - Refer to Cornerstone Exercise 3.4 for data on...Ch. 3 - Prob. 6CECh. 3 - The controller for Dohini Manufacturing Company...Ch. 3 - Prob. 8CECh. 3 - Classify the following costs of activity inputs as...Ch. 3 - SmokeCity, Inc., manufactures barbeque smokers....Ch. 3 - Cashion Company produces chemical mixtures for...Ch. 3 - For the following activities and their associated...Ch. 3 - Prob. 13ECh. 3 - Vargas, Inc., produces industrial machinery....Ch. 3 - Penny Davis runs the Shear Beauty Salon near a...Ch. 3 - Shirrell Blackthorn is the accountant for several...Ch. 3 - Deepa Dalal opened a free-standing radiology...Ch. 3 - Prob. 18ECh. 3 - The controller of the South Charleston plant of...Ch. 3 - Lassiter Company used the method of least squares...Ch. 3 - Sweet Dreams Bakery was started five years ago by...Ch. 3 - Prob. 22ECh. 3 - Bordner Company manufactures HVAC (heating,...Ch. 3 - Sharon Glessing, controller for Janson Company,...Ch. 3 - The graphs below represent cost behavior patterns...Ch. 3 - Starling Co. manufactures one product with a...Ch. 3 - Prob. 27ECh. 3 - Prob. 28ECh. 3 - Prob. 29ECh. 3 - Prob. 30ECh. 3 - Rolertyme Company manufactures roller skates. With...Ch. 3 - St. Teresas Medical Center (STMC) offers a number...Ch. 3 - Big Mikes, a large hardware store, has gathered...Ch. 3 - Kimball Company has developed the following cost...Ch. 3 - The management of Wheeler Company has decided to...Ch. 3 - DeMarco Company is developing a cost formula for...Ch. 3 - Prob. 37PCh. 3 - Friendly Bank is attempting to determine the cost...Ch. 3 - Randy Harris, controller, has been given the...Ch. 3 - Prob. 40PCh. 3 - Harriman Industries manufactures engines for the...Ch. 3 - Thames Assurance Company sells a variety of life...
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