Mixed Cost Analysis and the Relevant Range LOS-10
The Ramon Company is a manufacturer tint is interested in developing a cost formula to estimate the variable and fixed components of its monthly manufacturing
The company leases all of its manufacturing equipment. The lease arrangement calls for a flat monthly fee up to 19,500 machine-hours. If the machine-bows used exceeds 19,500, then the fee becomes strictly variable with respect to the total number of machine-bouts consumed during the month. Lease expense is a major element of overhead cost.
Required:
1. Using the high-low method, estimate a
2. Prepare a scattergraph using all of the data for the two-ear period. Fit a straight line or lines to the plotted points using a ruler. Describe the cost behaviour pattern resealed by your scattergraph plot.
3. Assume a least-squares regression analysis using all of the given data points estimated the total fixed cost to be $40,102 and the variable cost to be $2. 13 per machine-hour. Do you have any conceits about the accuracy of the high-Low estimates that you have computed or the least-squares regression estimates that have been provided?
4. Assume that the company consumes 22,500 machine-hours during a month. Using the high-low method, estimate the total overhead costthat would be incurred at this level of activity. Be sure to consider only the data points contained in the relevant range of activity when performing your computations.
5. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis using only the data points in therelevant range of activity estimated the total fixed cost tobe $10,090 and the variable cost to be $3.53 per machine-hour.
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Introduction To Managerial Accounting
- The expected costs for the Maintenance Department of Stazler, Inc., for the coming year include: Fixed costs (salaries, tools): 64,900 per year Variable costs (supplies): 1.35 per maintenance hour Estimated usage by: Actual usage by: Required: 1. Calculate a single charging rate for the Maintenance Department. 2. Use this rate to assign the costs of the Maintenance Department to the user departments based on actual usage. Calculate the total amount charged for maintenance for the year. 3. What if the Assembly Department used 4,000 maintenance hours in the year? How much would have been charged out to the three departments?arrow_forwardInstructions: A company has iwo alternative proposuls. The details are as follows: Compare and solve the following data to determine ARR: Proposal I Automated Machine Proposal II Ordinary Machine Cost of Machine 250,000 5 years 180,000 60,000 14,000 25,000 80,000 Estimated Life Estimated sales p.a. Cost: Material Labor years 150,000 40,000 70,000 30,000 Variable Overheads Answer the following: 1. Compute the profitability of the proposals under the return on investment method. 2. Decide whether to accept the offer or not. State your reason. 3. Defend your answer.arrow_forwardA manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: Location A Location B Monthly Fixed Cost ( $ ) $16000 $34000 Unit variable cost ( $ /unit) (including labor, material and transportation cost) $20 $5 Which one of the the following monthly production volume is closest to the volume where the company would be indifferent between the two locations ? Select one: a. 1320 b. 1200 c. 780 d. 1440arrow_forward
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